The Hindu Business Line : Needed, a better ideal than Asean rates

Coming to Customs, a look first at the tariff. The tariff has different rates — standard, alternative, exemptions, conditions, lists, and so on. The following rates of duty exist in the tariff: 150, 100, 85, 75, 70, 65, 60, 45, 30, 25, 20, 15, 10, 5, 3, nil and many specific rates.

The popular perception that 20 is the peak rate is incorrect. It is actually the median rate, which means that 20 is the rate in most of the chapters. In 75 out of 98 chapters, there are multiple rates and also exemptions.

The general exemption No.66/2004-Cus dated July 9, 2004, has got 462 serial numbers. There are 95 conditions and 47 lists. This is not the only exemption. There are 113 more, spread over more than 400 pages of any standard tariff publication. Certificates from any or more of the 22 departments are necessary to satisfy the conditions in the exemptions.

In these 47 lists, there are 2,153 items, which are to be identified in regard to their attributes so as to satisfy the AOs that they deserve exemption.

The impact of all these complications can only be imagined. One has to see this in the context of so many cases of corruption detected and reported in the media.

Here are some suggestions for reducing complications in the tariff so that classification and assessment of imported goods can be easier and quicker.

A chapter should generally contain only one rate of duty. This is not impossible to achieve, as the items in a chapter fall under the same group of things. This can be achieved in most of the chapters if a conscious effort is made and exemptions minimised.

Conditions to be minimised: The end-use condition needs to be abolished and declarations accepted. In case aberrations are detected, action can be taken.

The lists must be pruned, and it is quite obvious that they are simple reproductions of the lists given by the administrative Ministries.

There must be large-scale abolition of exemptions. Without this, no reform can be successful.

The higher rates can be combined at 150, 100, and 50. The median rate can be 15 and the lower rates, 10 and five. So the total number of rates would be 150, 100, 50, 15, 10 and five. The rates of 15, 10 and 5 may be revised next year depending on the economic situation.

The plethora of certificates should be abolished by introducing the system of declaration. If the declaration is found to be wrong, action may be taken.

Asean rates

There are indications that the Government is keen to bring the Customs tariff to Asean levels. Under the AHTN (Asean Harmonised Tariff Nomenclature), it is the un-weighted average tariff rate that is taken, which is to be brought down to 15 per cent, and not the weighted average rate.

Even if the peak tariff rate is 35 per cent and the individual lines 15 per cent, 10 per cent or 5 per cent, the average can come to 15 per cent.

In Cambodia, for example, the maximum rate has been reduced from 120 per cent to 35 per cent and a number of tariff headings have been done away with. But the tariff is not shorn of ambiguities and contradictions.

For example, in chapter 7, nil rate has been accorded to seeds for propagation and 7 per cent for other seeds for consumption (potato, for instance). This can lead to mis-declaration. Moreover, the unweighted average rate of 15.25 per cent is only a nominal rate, the effective rate is much higher.

There is also a special tax at varying rates of 0, 10, 25 and 35. For example, the duty on car is 35 per cent but in effect the rate is 35 + 45 (ST) + 10 (VAT), which works out to 110 per cent. So, the situation is not quite transparent. Thus, the so-called Asean rate is also not an ideal substitute. It has all the maladies of multiplicity of exemptions, puzzles of classification and hidden rates.

What should be aimed at is real reform of removing complications and distortions, and not merely achieving the Asean level.Thus, unless reforms in the tariff and law are undertaken, the hope that Customs work will be quicker merely because of computerisation will remain a chimera.

The fact that there are still delays in Customs clearance is largely because of a highly complicated tariff.

(The author is a former Member of the Central Board of Excise and Customs.)

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