<b>Sukumar Mukhopadhyay:</b> Budget to foster move towards GST

But lack of reform in customs duty is a glaring omission

For the first time in more than half a century that I have been actively associated with the Union Budget on the indirect tax side, I find, with great satisfaction, that practically no change has been introduced in the Budget. It is a status quo Budget, which is best under the circumstances. The Budget for 2017-18 has done well by not bringing out “many changes in the current regime of Excise and service tax because the same are to be replaced by GST soon”. It is a very wise decision due to the reason that any changes would have been applicable only for a few months — up to the end of June. This will make the officers free to spend all the time now available to them for introducing the GST rather than keeping them busy to implement the changes in the rates of duty.

The Budget has clearly articulated the movement towards GST elaborating on the preparation of the IT system which is on schedule. The extensive reach-out efforts to trade and industry for GST will start from April 1, 2017 to make them aware of the new taxation system.

For the first time in the Budget, it has been declared unequivocally that tax administration is to be reformed on the principle that while collection of revenue is necessary, officers have to be accountable for specific acts of commission and omission. This is a great change from the previous approach of collecting revenue at all cost without any consideration of fairness to the taxpayers. The FM has declared in the Budget speech, “I would like to assure everyone that honest, tax-compliant persons would be treated with dignity and courtesy”. This is a very important declaration in two ways. The officers who want to take correct decision can now rely on this statement to give a decision even if it goes against revenue.  Secondly, the taxpayers who are harassed can also quote this sentence to the senior officers or even in a tribunal or a court if there is any high-handedness on the part of the officers.  

Some of the other changes that have been brought about are the following: On the customs side a definition of beneficial owner has been introduced. The definition is that it is any person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported. This was necessary because there was a long-standing problem, which I had even noticed since the 1960s, that some people would actually be performing the functions of an importer and use the licence of another person, who would actually be a name lender. In case of any departmental proceedings against them, both of them would argue that they are not importers in the sense that the functions of an importer are divided between the two. It would be a very difficult job to prove who the importer is. For it is necessary to pinpoint who the importer is in order to put penalty on him or to prosecute him. The introduction of this new definition will eliminate that problem. Another change in Section 27(2) of the Customs Act has been brought about to keep outside the ambit of unjust enrichment, the refund of duty paid in excess by the importer before an order permitting clearance of goods for home consumption is made. This is a very welcome change. 

I must also mention that the whole law of unjust enrichment should have been given a decent burial since it is an economically undesirable law though it has been legally held to be correct. This law is not there in other countries and it is detrimental to the “ease of doing business”.

The ease of doing business is one of the chapters in the Budget speech. Some amendments to the Income Tax Act have been introduced with that idea in view. However, on the indirect tax side no such move has been initiated. If an amendment had to be done, the first priority would be to remove the law of unjust enrichment, which has become a highly litigated subject and which is also a cause for delay in getting refund. It also leads to corruption.

The finance minister has not introduced any reforms on the customs side which is definitely an omission. It is just possible that he was too busy with the GST and demonetisation. That only leads to the conclusion that the officers who make the preliminary draft of the Budget did not have the priority right. When they were not spending any time in introducing changes in service tax and excise rates, they were free to devote the time in introducing reforms in rates of customs duty. 

Here I must point out that there are a very large number of overdue reforms in customs which have not been attempted at all. The simplification of tariff is one of them. At present there are 19 rates in customs duty such as 150, 100, 85, 70, 65, 60, 50, 40, 35, 30, 25, 15, 10, 7.5, 5, 3, 2.5, nil and some specific duties. Then there are hundreds of exemptions and conditions and lists, which make customs duty classifications quite complicated. There has been no move towards removing the exemptions in a big way in customs which would have given a lot of extra revenue. 

Moreover, the classification would be simpler. The rates could be combined at 150, 100, 50, 25, 15, 10 and 5. There could be more of self declaration rather than bonds that would make clearance much easier. Digital payment of duty at the airports should have been introduced now when there is so much of talk about digitisation in the whole country.

In conclusion I would say that the status quo Budget for excise and service tax is very good. But not doing any reform on the customs tariff is a glaring omission.
 

The writer is retired member of the Central Board of Excise and Customs; smukher2000@yahoo.com