As far as pronouncements on reforming the tax administration is concerned, this Budget has been excellent.
The purpose, the finance minister said in his speech, is to, "eliminate procedural complexities, reduce paper work, simplify tax administration and to enforce efficiency [and] move away from a suspicion-ridden, harassment-generating, coercion-inclined regime to a trust-based green channel system."
But the fine print suggests that these good ideals have not really been put into practice.
Consider the green channel for cargo clearance. The Budget has recommended some measures to waive the physical examination of cargo. This is good as far as it goes, but not good enough.
The fact is that physical examination is only one part of the goods clearing system. The other two parts are classification and valuation. As far as classification is concerned, several measures have to be taken as a package to accelerate procedures.
The package consists of: (a) simplifying the tariff by removing conditions, lists and bonds; (b) moving the assessment work to the docks so that the importers do not have to run from the Custom House to the docks; (c) ordering the clearance of cargo only keeping the samples that can be tested later; (d) reducing the possibility of chemical tests by unifying the rates of duty; (e) downsizing the appraising staff and the huge chemical laboratory; (f) making pre-shipment certificate of goods acceptable; (g) making a manufacturer's certificate acceptable in place of chemical tests; and (h) making the information about classification of all imports available on a website.
Nothing has been done in this Budget to reduce the number of rates of duties or notifications with conditions and lists. The exemption notification (number 26/2003 dated March 1, 2003) giving the effective rates has 433 entries compared to 415 last year, 91 conditions compared to 89 last year and 46 lists compared to 43 last year.
The notification giving the rates was changed 19 times last year. The number of exemptions and corresponding complications have increased rather than decreased.
On the valuation side also, some innovative suggestions were made before the Budget to minimise delays. The Custom Houses have a lot of information about the valuation of similar goods in their computers but this is not disclosed to importers. All the data available with the Custom Houses should be uploaded on to a website for everybody to see and consult.
This will arm importers with the information about the classification and valuation of the goods so that if the appraiser mistakenly undervalues the goods, they can counter the claim by quoting from the website.
In short, to make the green channel a reality, all these actions need to be taken together as a package.
Consider also the case of advance rulings. Section 28E and 28H of the Customs Act are being amended to allow non-residents and wholly-owned Indian subsidiaries of a foreign company to avail of the benefit of advance ruling.
But this benefit is being denied to Indian manufacturers and importers, who would have formed the larger proportion of the beneficiaries and who are suffering due to the uncertainties over the lack of advance ruling.
Unfortunately, the Budget has kept this system of advance ruling in this truncated form even though the number of beneficiaries is minuscule. I gather that not even three cases have come up so far. It is a flawed concept that is designed to deny the deserving.
The concept of self assessment of goods for importers and exporters is another idea of which the benefits are illusory. The scheme was conceived so that the importer or exporter would determine the classification of goods, including the exemption claim, and the system will calculate the duty on the basis of his declaration.
This looks fine for people who don't know the system. What this scheme overlooks is that the goods cannot be cleared for home consumption or for exports unless the customs officer approves it. This is the crucial difference between customs and central excise. In central excise, goods are allowed to be cleared by manufacturers from their factories.
In customs, the appraising officer has to sign before the goods are cleared. So, as long as the officer has to sign, no benefit can accrue merely because the importer mentions the classification heading.
In any case, under current practice, it is the importer who fills in the classification and notification number to help the assessing officer. So this is an imaginary reform.
Regarding the amendment of the law prohibiting "unjust enrichment" there was a good suggestion in the Partho Shome and Kelkar committee reports.
The suggestion was to amend the law so that it does not apply to provisional assessments and in the case of captive consumption. This was not such a radical suggestion but it has not been implemented. So getting refunds from the customs and excise is still next to impossible. And it breeds corruption too.
On Cenvat, there were three good suggestions in the Partho Shome and Kelkar committee reports. They are:
It is a pity that these crucial suggestions for procedural rationalisation have been so thoroughly ignored.
(The writer is former member, Central Board of Excise and Customs)