Rationalise tariff lines and opt for a single rate

Updated: Jan 27 2005, 05:30am hrs
It's that time of year when questions of whether the FM would do the usual stuff like tinkering with customs and excise duties or cut the Gordian knot and introduce some path-breaking measures do the rounds.

What if he were to do the latter

There cannot be a more opportune time to announce a concrete and binding medium-term roadmap to reduce tariffs to Asean levels. The industry seems to have become immune to customs tariff movements - not that there has ever been a valid co-relation, although reductions historically have always raised hackles!

And, more importantly, what the resting point would be is important since Asean tariffs are moving targets and the appropriate range in 2004-05 was considered to be 12-15%. Therefore, bringing the peak rate to 15% this year would be a good start. This will also wipe out some blushes from the embarrassment of forex riches.

Next would be to give finality to the number of rates. Numerous reports from Arvind Virmani to Vijay Kelkar have looked at the constant bickering from industry of value addition, anomalies, effective rates of protection and so on. The recommendations range from having a single rate of customs to a three-rate structure.

Except for some industry sectors, justifications for a graded 3-tier structure on raw materials, inputs and finished product are unfounded. The tariff lines can be cast in a single rate and the rest in a minimum rate. It would also do immense good to look at the 19 more rates ranging between 30% and 150% in our tariffs over and above the four basic rates of 0%,5%,15% and 20%.

Again, except for agricultural products and the like, there are a number of rates that can be collapsed. In fact, ghost rates can certainly be driven away. There are a number of commodities that are in a particular rate category but attract a different duty through exemptions.

The exemptions are notoriously famous for another reason also. They have kept our tariff books so complicated that even seasoned practitioners find it difficult to look up the effective duty on commodities. There are at least 55 tariff lines attracting nil customs duty in the 99 chapters of customs tariff, 94 entries attract nil customs duty by notifications translating to many more hundred items across chapters. In addition, a plethora of notifications giving duty concessions on several commodities exist.

What the 1997 dream Budget was all about

FII limit raised from 24% to 30%
Buyback of shares tobe allowed
FERA 1973 to be replaced by Foreign Exchange Management Act. Capital account convertibility on anvil.
Ad hoc T- bills to be discontinued.
Controls on agricultural products to be reviewed and wherever found unnecessary, abolished.
14 SSI items to be de-reserved.
Urban Land (Ceiling and Regulation) Act, 1976 to be amended
Nine well-performing PSUs to get more autonomy
Disinvestment in three PSUs to start
New exploration licensing policy (NELP) to be announced. Companies, including ONGC and OIL, to be paid the international price of oil for new discoveries; oil companies to be given freedom to market crude oil and gas in the domestic market.
Telecommunications, oil exploration and industrial parks to qualify as infrastructure
New Companies Bill and Direct Taxes Bill to be introduced.

Except for life-saving and related items, a minimum duty should be imposed on the rest in one sweep in this Budget. And to make the tariff book more user-friendly, only the effective duty of commodities should be published instead of having to pour through notifications.

The grand finale would be if the veil of secrecy on item-wise customs and excise duties each year were lifted. The task is all the more easy now since 85% of the 6,000-odd tariff lines are in the 20% slab in customs and around 88% are in the Cenvat rate of 16% in excise. Of course, industry would also like to know the resting point for excise instead of hoping for the removal of the SED rates every year.

Remove exemptions, go whole hog to widen service tax - for instance, bring movement of goods by rail under the tax net.

If the FM can do all this along with Vat implementation, a serious look at procedural simplification and tax administration and bring them to world standards, he can surely say Hum hai lajawab and announce to the world Rok sako tho rok lo.

The writer is head - customs & regulatory affairs, DHL Express. These are his personal views