Commodities

Mandatory registration of steel import contracts is a sound move; but time limit, fees can be eased

G Chandrashekhar | Updated on September 13, 2019 Published on September 13, 2019

The user industry is unhappy with mandatory registration of steel import contracts

The government’s move towards mandatory registration of steel import contracts under the Steel Import Monitoring System has raised the hackles of the user industry. The decision is intended to check, if not eliminate, invoice manipulation, the government has argued.

Until now, New Delhi has had no clue about the details of import contracts entered into including the origin of goods, contract prices and period of arrival. In the absence of this vital information, policy-making was reactive rather than proactive. So, any expression of grievance against contract registration deserves to be ignored.

But two issues merit reconsideration by the government. First, the time limit specified for the registration of import contracts. The timelines make little sense and are unlikely to serve any useful purpose.

Second, the registration fee. Why should the fee for mandatory registration of contracts depend on the value of the imported cargo? After all, the government, in its own interest and to advance transparency, has mandated registration. It cannot become a revenue generating measure. A nominal registration fee on a per-tonne basis should be levied primarily to cover administrative costs.

Unfortunately, mere registration of import contracts is unlikely to solve the menace of invoice manipulation — over-invoicing or under-invoicing — although the registration authority will have advance information of the contracted prices.

In order to address the issue of invoice manipulation, the tariff value can be specified. When it is specified for an imported commodity, the customs duty will be charged on the specified tariff value and not on the basis of the invoice price. The tariff value can be reviewed every fortnight or month depending on global market conditions.

This way revenue will not be lost and importers of identical or similar goods will end up paying the same amount of customs duty. The exchequer will stand to benefit.

BusinessLine impact

There are precedents. In case of edible oil import, customs duty is levied on the tariff value, which is reviewed every fortnight. The system of tariff value was introduced by the government some 10 years ago after BusinessLine, in a series of articles, exposed the rampant under-invoicing of imports by some unscrupulous importers that resulted in revenue loss for the exchequer. Also, there was a suspicion of unholy collusion with Customs officials.

After the introduction of the tariff value, all importers were on par as far as the payment of import duty was concerned, and the market saw a level playing field.

Indeed, in the case of edible oil imports, just like steel, the introduction of a system of contract registration is necessary as it will provide the policy-makers with advance information about the quantities contracted for, the contracted prices, the period of import, type of oil and so on.

In the case of steel, because there are too many item lines, the Finance Ministry can identify and select a limited number of items where there may be higher propensity for invoice manipulation.

Without doubt, global market conditions are challenging, worsened by the ongoing trade war between the US and China. India is perceived to be a relatively soft market with less robust border control measures.

Complex policy context

Also, around the world, the policy context is becoming increasingly complex. Every country faces domestic socio-economic and political compulsions on the one hand, and international obligations on the other.

No wonder, governments ride on the horns of a dilemma — how best to reconcile domestic compulsions with international obligations. In most cases, the former outweighs the latter.

The writer is a policy commentator and commodities market specialist. Views are personal

Published on September 13, 2019

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