For a checkpost-free India

Pritam Banerjee | Updated on January 17, 2018

Keep them moving Something for the GST panel to mull over KK Mustafah   -  THE HINDU

If GST is to work as a business facilitator it must attend to crucial details, such as harassment in inter-State transactions

One of the biggest successes of the Modi government in the last two years has been ending the ‘inspector’ raj governing the day-to-day lives of Indian citizens. A lot of such inspections do not make sense. A trivial but easy-to-relate example concerns immigration at an Indian airport. A security official is deployed to check whether the passport has actually been stamped by the immigration officer — in other words, to check whether his colleague, the immigration officer, is not inept and is doing his job of stamping the passport in the first place.

It is precisely this philosophy of checks upon more checks that creates layers of inspection. These micro-level irritants add up to a rather sorry business environment in India. That these small details really matter is often forgotten by the votaries of big-ticket reforms.

This government’s initiatives in the area of creating a single window for export and import procedures, known as SWIFT (Single Window Interface for Facilitating Trade), are a great example of detailed reform. SWIFT, which integrates processes related to several agencies into one, if implemented properly, would ensure that several ‘checkposts’ are eliminated at one go.

The resultant reduction in costs, and more importantly the irritants in trading across India’s borders, would be a big boost for investors interested in ‘Making in India’.

Importance of detail

Big-ticket reforms too need to take cognisance of small detail. This government’s biggest ‘big-bang’ reform, the Goods and Services Tax (GST) is no exception. Now that the Bill has been passed, the focus again has shifted to the implementation process. A lot of the actual reforms would relate to the re-engineering of processes at the State level. The stakeholder discussion that has been convened by the empowered committee on August 30 assumes importance in this context.

The main idea behind the GST is to peel off overlapping layers of checks and procedures. The physical embodiments of such checks are the nakas and chungis where trucks wait in long queues. No other country, including geographically large federal entities comparable to India such as Canada, Brazil, or even the EU (which is actually 28 sovereign states), has such a system. To make India one economy, we need a ‘checkpost- mukt’ or checkpost-free environment.

The question that remains is whether this objective will be given its due weight, or be overlooked in the debate on the rate of tax and the usual demand for exemptions or special treatment by various groups. Besides, State administrations would be reluctant to let go of the controls that have been their turf for so long. What measures can the Centre and States together take to create a checkpost- mukt India?

Objectionable provisions

Sections 12 and 23 taken together require that goods be formally invoiced prior to their movement. To eliminate paper trails and harassment, not to mention checks of physical documents, the Goods and Services Tax Network (GSTN) should be tasked with developing an e-invoice that can be filled and submitted online. Objections that this would somehow be difficult to implement, especially for SMEs, are nonsensical in this day and age of mobile-based internet and apps that even children use with ease.

The language contained in Sections 61, 62, 69 and 71 gives overarching powers to the officials to check documents and the actual shipments being transported. It also gives officials powers to arrest and detain a consignment. However, the same powers are often used to harass and deter the free flow of goods.

Assume that a truck has 20 different consignments. The officer finds a minor flaw in the documentation of one of the consignments. Should the whole truck be detained, the other 19 consignees made to suffer and production lines brought to a standstill?

Where and how should such inspection of documents and goods take place? Should the old system of checkposts continue? Surely a big-bang reform such as GST was made to precisely change these antiquated systems.

More transparent procedures

Therefore, the first and biggest step towards reform would have to be a commitment from the empowered committee, representing all the 29 States, to do away with checkposts. Intermittent, random checks could be used as deterrence against any attempted illegality.

The second step would be for the States to agree on a standardised electronic invoice. This electronic invoice (potentially hosted by GSTN) should be the only document required by a transporter to meet the legal obligations contained in Sections 12 and 23. This would ensure that harassment of truck drivers over invoicing and other supporting documents that they have no role in preparing will largely cease.

The third step would be to develop a system of checks and balances around the powers granted to officers under Sections 61, 62, 69, and 71. States would need to commit to a requirement for officers to record every stoppage of vehicle in a central database, with a valid reason for their action.

Rules should also be made for the mandatory use of CCTV camera for any further physical examination of goods. Both these measures would create much greater transparency in the conduct of officers on the road.

States should also commit to maintaining a database of the number of vehicles stopped, and further action such as detention of vehicle or arrest of personnel that is undertaken. This database should be subject to Right to Information (RTI) Act. These measures would ensure that when random checks by officials do take place, they are undertaken in largely transparent manner with the minimum of harassment and rent-seeking.

The fourth step would be the integration of declaration for export and import shipments with the customs IT system or ICEGATE. Since goods imported into India would pay the GST component, that is, IGST at the time of customs clearance, no further information should be required for the movement of such tax and duty-paid goods, besides the proof of customs declaration and payment of duty.

While these systems apply largely to road transportation, they could work just the same for other modes or multi-modal means. A large developing country such asBrazil has the ‘nota fiscal’ system which is similar to what is being suggested here.

These elements taken together can free domestic transportation from inspector raj, a least as far as tax-related compliances are concerned.

Vested interest arguments

But there is always a chance that vested interests within and without government would raise the bogey of security, revenue leakage and smuggling, which represents 1 per cent of the total transport activity, to burden the other 99 per cent with redundant procedures and transaction costs.

This is despite the fact that physical checks and checkposts have proved incapable of preventing illegal activity. The next few weeks would show how serious India’s political leadership is in fulfilling their commitment to ‘seamless movement of goods’ used so often as argument in support of GST. The dream of ‘One India’ awaits the decision of the empowered committee.

The writer is a senior director for Corporate Public Policy, responsible for South Asia region, Deutsche Post DHL Group. The views are personal

Published on August 28, 2016

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