A very grand scheme known as Legacy Resolution Scheme is being introduced for the purpose of quickly disposing of the legacy of cases with regard to excise and service tax that arose before the GST came in two years back. It is estimated that nearly Rs 3.75 trillion are held up in these cases. This will greatly relieve the department and the trade and business from litigation. This is a great idea. There is already a Settlement Commission that could be given this job. However, the full name of this scheme is Sabka Vishwas Legacy Dispute Resolution Scheme. Pre-fixing the expression Sabka Vishwas
to the scheme is quite funny. That is why possibly the main Budget speech does not mention this expression.
Certain increases in the rate of duty will attract lot of attention and criticism. Newsprint has been traditionally exempted. Now duty of 10 per cent has been imposed on newsprint, uncoated paper used for printing of newsprint and light weight coated paper used for printing of magazines. This will generate a lot of protest from newspapers. Printed books have always been exempt. Now a duty of 5 per cent has been put on books. The reason that has been given is that it will improve the chance of books being printed in India. This is quite an invalid logic. With 5 per cent duty on imported books, the scale of preference to get books printed abroad will continue as before. Only bad name will come to the government. There will be huge protest against this. Therefore, this is a wrong move.
A very important improvement in the tariff structure has been achieved by advaloremisation of certain duties namely cashew kernels. But this could have been done in a big way for many other items mostly the textiles. It may be remembered that one of the conditionalities given by the International Monetary Fund during the time of liberalisation from 1991 to convert fixed duty into advalorem. During that time this was achieved in a big way but some items still remain.
However, no general rationalisation of the tariff has been achieved. If we go through all customs tariff, at a glance, we find that there is enormous scope of rationalisation by simplification of rates without losing any duty. Important chapters such as papers, textiles, machinery and instruments are examples where so many different rates of duty are prevalent though one rate of duty is prevalent. Chapter 48 on paper shows that mostly the rate of duty is 10 per cent. But there is one duty of 20 per cent. If this is also made 10 per cent and some exemptions are withdrawn, all papers will come under the same rate of duty of 10 per cent. That will eliminate all problems about drawing samples and test in the laboratory. In Chapter 50 for silk, all rates of duty are 25 per cent but for a few items, it is 30 per cent. The same for Chapter 51 that is also textile items. In Chapter 52 for cotton, the rates are 20 per cent, 25 per cent and 30 per cent and some specific duties. The biggest simplification will be 25 per cent for all the textile chapters.
The revenue implication can be worked out and necessary reform can be done. For Chapter 84, which is for mechanical machinery, the general rate is 7.5 per cent and for a few items, it is 10 per cent. For Chapter 85 for electrical machinery, the rates are 7.5 per cent, 10 per cent and 15 per cent. For Chapter 90, for instruments, the rates are 7.5 per cent and 10 per cent. The largest majority of items attract 7.5 per cent. If all the chapters are made to attract 7.5 per cent, the rigmarole of defining and distinguishing between mechanical, electrical and distinguishing between different instruments, calling the view of experts will vanish. In general, at the lower level there are four rates of duty, namely, 5 per cent, 7.5 per cent, 10 per cent and 15 per cent. If 7.5 per cent is abolished and only 5 per cent, 10 per cent and 15 per cent are retained, there will be enormous simplification provided that at the same time “one chapter one rate” principle is followed. There has to be exception for a few items like refrigerator, air conditioner and ball bearing.
The conclusion is that while the changes in the Budget in the rates of duty of customs have been for good reasons, except for duties on newsprint and books, general reform of the tariff has not been done.
The writer is retired member of the Central Board of Excise and Customs; firstname.lastname@example.org