As a part of an ongoing process of tax reforms, a Task Force headed by Shri Vijay Kelkar was appointed to review the existing system and make further recommendations, including those relating to the foreign trade sector.
The Committee (Kelkar Committee) suggested a road map for further reforms in areas like customs tariff and exemptions, customs procedures and trade facilitation, export promotion and improving automation and tax administration.
Tariff and Exemptions
(a) Duty Rates:
The Committee recommended that we should aim at achieving zero duty on import of essential items, 10% duty on raw materials, inputs and intermediate goods, and 20% duty on final products by 2004-05.
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Assuming the introduction of state level value-added tax (VAT), these duties should be reduced further to 5% for basic raw materials, 8% for intermediate products, 10% for finished goods, and 20% for final goods by 2006-07.
(b) Agricultural Products:
The Task Force did not suggest rates for agricultural products since they stand on a different footing.
(c) Multiplicity of Duties:
The Committee suggested a reduction in multiplicity of levies. It advocated retention of only three types of duties, viz., Basic Customs Duty, Additional Duty of Customs and Anti-Dumping/ Safeguard Duties.
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It advocated a general policy of there being no exemption from countervailing duty. It further suggested, removal of all exemptions except in the case of life saving goods, goods of security and strategic interest, goods for relief and charitable purposes and international obligations. In addition, it recommended that, to the extent possible, end-use based conditional exemptions should be avoided.
(d) Basis of Duties:
The Committee recommended that specific rates of duties should be replaced with ad valorem rates.
Customs Procedure and Trade Facilitation:
The Task Force recommended systemic changes in customs procedures and trade facilitation, based on modern best practice. Such a practice has the features of self-compliance, risk analysis and management.
And, it is also backed by periodic post-audits of records. In this context, the Committee also made several additional recommendations including a universal green channel and the like.
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Other recommendations for customs administration included availability of customs officers on holidays, especially at international airports, so that exports are not held up, framing of export valuation rules, permission for payment of customs duty through cheques etc.
Export Promotion:
The recommendations of the Task Force regarding export promotion included the following:
(a) Instead of having a large number of export promotion schemes, there should be a unified viable export strategy which should focus on:
(i) SEZ and Export Oriented Unit (EOU) schemes for grant of duty exemption on all goods required for export production,
(ii) Advance Licensing Scheme to grant duty exemption to actual users on capital goods, and raw materials etc.,
(iii) Improvements in the Drawback Scheme, and
(iv) Merging of Duty Exemption Pass Book scheme with the Drawback Scheme from April 1,2005.
(b) Export related incentives in the form of various tax concessions should be phased out.