Govt plans comprehensive review of FTAs

Written by Kirtika Suneja | Gireesh Chandra Prasad | Gireesh Chandra Prasad | New Delhi | Updated: Feb 19 2014, 10:50am hrs
Convinced that some unconventional steps would be required to take the gross tax receipts growth for FY15 to the budgeted 19%, the government is planning a comprehensive review of the free trade agreements (FTAs) India has entered into with other countries. The government wants to verify if the FTAs have adversely impacted the domestic industry.

In parallel, it will also beef up the scrutiny of excise duty assesees as it has in recent years of the income tax payers, a drive which has yielded good results.

Confirming this, CBEC chairperson JM Shanti Sundharam told FE: The finance ministry has set up a committee to suggest ways for effectively cross-verifying claims of input tax credit to prevent wrongful claims leading to excise duty evasion.

The idea is to take all possible steps to boost indirect tax receipts, projected to grow at 18.8% annually in 2014-15, while the nominal GDP growth is estimated to grow at 13.4%. Many analysts doubted the practicality of the estimate. The gross tax receipts for 2013-14 was initially budgeted to grow at 19% but the revised estimate in the interim budget on Monday showed the growth at 12%.

Sundharam said a review of all bilateral trade agreements is under consideration. Domestic industry does get impacted by FTAs. It would be necessary that we take a review of all FTAs and examine what has been their impact on the domestic industry. This is needed to assess how to go forward on promoting the domestic industrys prospects, she said.

The finance minister had on Monday announced excise duty cuts on capital goods, cars, mobile handsets and a host of household electronic appliances to boost the domestic manufacturing sector. He expressed the hope that tax cuts would boost sales, eliminating any resultant revenue loss.

Sources said that there are instances where FTAs are abused by importers, who route products from third countries through Indias FTA partner nations to take advantage of the duty benefits. One example is betel nut, used mainly in the Gutka industry, which attracts an MFN import duty of 108% but gets zero-duty benefit under the SAFTA trade pact. Sources said betel nuts is grown in countries like Malayasia find their way to India through Bangladesh, taking advantage of the zero duty under SAFTA.

Sundharam said that CBEC is also going ahead with introducing a robust system to cross-verify claims of input tax credit availed by businesses. We have set up a study group, which will shortly recommend measures to match Cenvat credit invoices. Apparently, lot of leakage happens here. We need to address this effectively, she said. Since excise duty is in the nature of Value Added Tax, where each business ultimately pays only tax on the amount of value added, matching of taxes actually paid at the time of purchase of raw material and the amount of tax credit availed at the time of paying to government the final tax liability on the output is essential. The income tax department follows a similar approach.

The finance minister is also considering a proposal for setting up a high-powered committee to revamp the IT infrastructure of the indirect tax administration for widening and deepening the tax base, in addition to providing better facilitation of services. Shanti Sundharam said better facilitation of services encourages voluntary compliance.

K Karthikeyan, partner at Tamil Nadu-based Sri Krishna Refineries, said, Our business of manufacturing groundnut oil and sunflower oil has reduced by 50% for the past few years due to imports from other countries as well as rising prices of groundnut here.