It is the season for submitting 'wish lists' to the finance minister. Let me make only one point today, which is to simplify the duty rate structure.
The present import duty rate structure has several components such as basic duty of Customs, additional duty of Customs to countervail the excise duty, education cess, secondary and higher education cess, additional duty of Customs to countervail the sales tax and value added tax. On top of all these normal duties, many items suffer anti-dumping and safeguard duties.
The calculations involved are complex enough to make a newcomer to the subject or even someone familiar with the subject look for a consultant to just understand how the aggregate duty rate is determined.
A plethora of exemptions depending on what is imported, who the importer is, where he is located, for what purpose the goods are imported and the conditions to be fulfilled for availing exemptions, documentation requirements and so on only complicate matters further.
There are more intricacies when Cenvat Credit has to be taken. Only a part of the total import duty can be taken as Cenvat Credit. Service providers can not take credit of 4 per cent additional duty.
Credit of 4 per cent additional duty taken cannot be used for payment of service tax. Refund of the 4 per cent additional duty can be taken in case the imported goods are re-sold but the documentation for getting the refund is so onerous that few can get the refund.
Once the Cenvat Credit is taken, further restrictions start. The credit of education cess can be utilised for payment of education cess and the credit of secondary and higher education cess can be taken only for payment of secondary and higher education cess and so on. So, different accounts have to be kept for each type of cess. The complexities are such that they impose unproductive compliance costs, just as the Fringe Benefit Tax does.
Export Oriented Units that clear manufactured goods into Domestic Tariff Area have to contend with so many provisions while calculating the duty to be paid. Even if they do everything right, the buyer has to struggle with a formula for taking Cenvat Credit that is not uniformly understood even by excise field formations or their auditors.
Even the provision exempting 4 per cent additional duty on goods sold in Domestic Tariff Area on payment of value added tax is not understood the same way by all concerned in the trade or the excise departments.
Before Chidambaram took over as finance minister, the import duty for most items involved only two elements - the basic Customs duty and the additional duty of Customs to countervail the excise duty. Chidambaram introduced education cess in 2004.
Next year, he extended 4 per cent additional duty across the board. Then he introduced secondary and higher education cess. He was absolutely insensitive to the costs he imposed at the ground level.
The trade does not mind paying taxes for education but it is better to raise the tax rates rather than impose cess, surcharge and so on. It is better to raise basic duty rates rather than impose anti-dumping duty on so many items, which seems more protectionist than raising basic duty.
The case for simplification in import duty rate structure is as strong as the case for abolition of FBT.
