What do the exporters and importers expect of the new finance minister, Jaswant Singh? The list could be long but here are a few points.
The finance minister must immediately sort out the issue of debit of special additional duty (SAD) to duty entitlement passbook (DEPB) for granting the exemption. He can either revert to the earlier system of automatic exemption of SAD when basic customs duty is debited to DEPB or he can let the Director General of Foreign Trade (DGFT) factor in the SAD incidence on the inputs and revise the DEPB rates. He should quickly rollback the decision of his predecessor to deny automatic SAD exemption.
Secondly, Jaswant Singh can take a pragmatic view of the special economic zones (SEZ) scheme. If the scheme is to succeed, SEZs must be treated as foreign territories for all practical purposes. This means that the legal framework of central excise, customs and exchange control laws must so provide as to allow all supplies to SEZs as exports and all clearances from SEZs as imports.
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The domestic tariff area (DTA) buyer must be allowed to pay in foreign exchange for purchases from SEZ and earn foreign exchange against supplies made to SEZs. The excise law must be made inapplicable for SEZ.
The procedures for clearance from SEZ to DTA or vice versa must be similar to the procedures at the land customs stations. Customs exemption notifications must be made applicable for all the clearances from SEZ to DTA.
Thirdly, the finance minister can take a hard look at the levels of protection from imports. His predecessor increased protection to domestic industry but that did not result in higher growth in the manufacturing sector. It is inconceivable that we can raise our annual exports to $80 billion in the next 5 years without allowing imports to grow.
The laws relating to anti-dumping also need a good re-look. Today, anti-dumping mechanism is used mainly to protect inefficiencies.
Yashwant Sinha deserves a lot more praise than he has been given for simplification of central excise laws. It is now for Jaswant Singh to simplify the customs laws.
The Central Board of Excise & Customs (CBEC) has issued many circulars simplifying the procedures. But, it is a lot better to re-write the laws, the way Yashwant Sinha got done in the case of central excise laws.
In the medium term export policy, the commerce ministry has made a suggestion to adopt eight digit classification in the Customs Tariff Act.
The idea is to more precisely allow duty exemptions to export-related inputs and levy higher duties on items that need higher protection.
The suggestion needs serious consideration keeping in view the need to harmonise the tariff with international systems and our own central excise tariff and duty drawback table.
Yashwant Sinha had made significant progress in getting the states to adopt value-added tax (VAT). Jaswant Singh can carry forward the process and ensure implementation of VAT by next financial year. That will automatically rebate the sales tax incidence on inputs used by exporters.
The exporters located in DTA, SEZ and those working under the schemes 100 per cent export-oriented units, software/hardware technology parks and export processing units get different income tax treatment. The finance minister can try to treat everyone equally.