TNC Rajagopalan: Need to curb wilful tax evasion

EXIM MATTERS

In his maiden address to the nation, Prime Minister Manmohan Singh has flagged many important issues that demand immediate attention. But the point that has caught public attention and imagination is the need to reform the government.

The Prime Minister had mentioned the point in the context of meeting the aspiration of the people. The point is equally valid with reference to tax evasion.

The Left parties do have a point in arguing that enough money can be mobilised to invest in poverty alleviation programmes and for investment in the rural sector if wilful tax evasion and cheating by businessmen are curbed.

Unfulfilled export obligation is a major area of tax evasion that the government must immediately address. There is total failure in monitoring the duty exemption schemes. The licencing authorities are happy granting more duty-free licences.

The wilful defaulters have become rich at the expense of the exchequer. Efficiency of the staff at the licencing offices is measured by how quickly and how many more duty-free licences they issue and not by how many cases they book against wilful defaulters.

Indeed, the Union commerce ministry should be more transparent and say in how many cases the export obligation remains unfulfilled and how much duty is involved.

The outstanding cases must be dealt with expeditiously and default regularised or action taken against defaulters. Statistics regarding defaults and action taken must be made available frequently.

Having said that, it must also be emphasised that in respect of duty-free licences, many exporters have in fact fulfilled their export obligation against duty-free licences but they are unable to complete the documentation requirements due to reasons beyond their control.

For example, in 1992-93, the government had messed up the legal requirements like the "nexus" requirement and the modvat reversal issues. The government must immediately come out with a way to help the genuine exporters to regularise their cases.

The government must also review many input-output norms that allow import of much more duty-free materials against duty-free licences than actually needed. There is a strong case to abolish the direct export subsidies to status holders (like export houses) and service providers.

Benefits granted on the assumption that Customs duty paid inputs have been used in export production need a review. Steps need to be taken to curb misuse of the deemed exports scheme, the export promotion capital goods (EPCG) scheme, the export-oriented unit (EOU) scheme and the special economic zones (SEZ) scheme.

At the same time, steps need to be taken to hold the Customs and excise officials accountable if they delay clearances or refunds or verifications or examinations or certifications. At present, they are held accountable only if revenue leakage is involved.

The government should also avoid the temptation to prescribe rigid "export valuation" rules. The ambiguous "import valuation" rules generate eno-ugh litigation and offer scope for arbitrary loading. Exports will be hurt if similar "valuation rules" plague exports.

Exporters are right in saying that transaction costs are high in India because of poor infrastructure and bad governance. They should not be placated through subsidies or inaction against defaulters.

While it takes a lot of money and time to build physical infrastructure, the soft infrastructure of rules and regulations can be reformed immediately without much money. The government must do that.

tncr@sify.com