Is technology a solution to all that ails Customs Administration in India? 

By Reena Asthana Khair, Senior Partner, and Head, International Trade & Indirect Taxation, Kochhar & Co

Prime Minister Narendra Modi recently launched the platform for ‘Transparent Taxation — Honoring the Honest’ as the government goes ahead with its direct tax reforms journey.  A slew of similar initiatives has also been introduced by the Customs Department aimed at providing a ‘Faceless, Contactless and Paperless’ Customs administration under its flagship ‘Turant Customs’ program, which can be roughly translated to ‘Immediate Customs’, with the objectives of speedy clearance, transparency in decision making, and ease of doing business.  India is keen to seize the opportunity to become the factory of the world for which easy availability of imported inputs is a sine qua non.  India is banking heavily on a digital transformation to reduce the time and cost of import.

Some of the recent initiatives by the Customs are:

• Paperless Administration – The customs administration has gone paperless with the complete digitization of customs documents including the issuance of QR encrypted e-documents such as gate passes and let export orders. Submission of original physical documents to the Customs has also been dispensed with.
• Compliance information portal – It provides a stage-wise detailed process flow chart for all procedures of import and export for any commodity up to the stage of clearance into India or for export from India, including information about any permissions or Licenses/Permits/Certificates/Other Authorizations (LPCOs) that may be required.
• No face to face interactions – Other initiatives include online filing of appeals and personal hearings through videoconferencing, with the objective of doing away with face to face physical interactions between the importers, their agents, and Customs officials.
• Random Allocation of work to officers – An innovative new step is the gradual removal of the territorial jurisdiction of officers. This means that a customs officer who is physically located in Bangalore, in the State of Karnataka could be assessing a Bill of Entry pertaining to imports made at a different Customs station, like Chennai or Delhi, whenever such a Bill of Entry has been assigned to him in the Customs Automated system. This arrangement would pave the path to establish National Assessment Commissionerates (NACs) with the mandate to examine the assessment practices of imported articles across Customs stations. A similar provision has been introduced as part of the Direct Tax Reform.

An important step towards a fair and honest administration

The new initiatives leverage technology for speedy clearances and reduce physical contact in the prevailing pandemic situation.  The digital transformation also gives an impetus to the fight against corruption, which creates uncertainty and unfairness in tax administration.  India is currently ranked 80^th out of 180 countries and territories in the Corruption Perception Index prepared by Transparency International.  The allocation of work by a Customs Automated System is one important step to address the problem of corruption.  Under this system, the assessment of imports made at Bangalore may be carried out by an officer located at another place, like Chennai or Delhi.  The possibility of physical contact or manual intervention for corrupt practices will be significantly curtailed.  The faceless and paperless initiatives will go a long way in incentivizing honesty and transparency by the importer and fair and quick assessments by the customs officials.

Substantive Issues not addressed

Despite the procedural simplification significant obstacles to smooth importation remain due to multiple rates of duty under the IGST, absence of a mechanism for an early resolution of disputes, inverted duty structure, and a system that rewards collection of duties and taxes rather than the trade facilitation.

While there has been progressing still many obstacles remain, which makes import into India cumbersome, as compared to other nations in South-East Asia. One of the main obstacles is that with the introduction of the Goods and Service Tax (GST) in 2017, apart from Basic Customs Duty, imports are also chargeable to Integrated Goods and Service Tax (IGST). The GST regime is complex and different rates of tax are being applied to items within the same broad product category, resulting in disputes regarding the correct rate of duty.  In case of a difference of opinion between the customs officials and the importers, the goods are re-assessed, and importers are often compelled to pay higher duties to avoid delays in clearance of cargo. These disputes get resolved only through protracted litigation.

Further many imported inputs are subject to an inverted duty structure, that is the inputs carry higher rates of tax, as compared to the goods manufactured in India.  In such cases, there is an accumulation of credit for the importer manufacturers who have no option but to seek refunds, of the accumulated credit resulting in blockage of funds.

There is also, a need for a change in the mindset of the officials, as they continue to see themselves as tax collectors and not as facilitators of cross-border trade. Even though the Citizen’s Charter mentions that the customs department is committed to educate citizens about indirect tax laws and to promote a consultative and collaborative environment, the ground realities are quite different.  There is a need for systemic changes, where rewards and recognitions are given to officers for providing facilitation, rather than to those who achieve tax collection targets.

Outlook

The tax collections have declined in the last quarter due to a sharp fall in domestic manufacturing coupled with low consumer spending on account of COVID-19.  For India to achieve its fiscal targets, the Government has no option but to increase its tax collections, given the rising public health expenditure.  There is also an increasing clamour for protectionism and demand for the introduction of tariff and non-tariff barriers to curb imports.  These compulsions should not take away from India’s commitment to making cross border trade in India, cost-effective, timely, fair, and uniform.  India must demonstrate its earnestness to attract foreign investment, by showing its willingness to make systemic changes, for becoming a part of global supply chains.  These changes will serve India well, in the long run, and yield benefits not only for foreign investors but also for the domestic industry.