Crystal ball gazing into FY 2021-22 Budget: A Trade and Customs perspective

  • Himanshu Tewari, Partner |

4 min read

Currently, the evolution of Customs and trade law is largely being influenced by forces such as digitization, trade facilitation and increased attempts towards nationalization of manufacturing. It is likely that the said forces will drive proposed changes in this sphere in the Annual Budget to be presented on 01.02.2021.

Digitization

Technology is making significant headways in various spheres including manufacturing and global trade in goods. Digitization will not only aid in furthering faceless interface, it will also trigger reliance on intelligence gathered by analytics from multiple sources such as Customs EDI system and the GSTN system, by the administration and policy making wings. Digitization will also contribute to dis-intermediation of customs compliance processes. While Government has been propelling digitization, businesses are yet to catch up with the pace of change. However, the onset of the COVID-19 pandemic prompted businesses to accelerate digitization of their operations. Adoption of trade technologies like Master Database Management, Data analytics, OCR, RPA, AI, Blockchain, combined with integration thereof with supply chain and trade compliances will likely pose a challenge for businesses both from the perspective of implementation as well as possible regulatory risks.

Trade facilitation

Customs law and related compliances will likely be subjected to further changes to enhance trade facilitation. An important sector that requires urgent attention in this area is the MSME sector. Efforts should be made to aid this sector in developing resilience for survival in the current unprecedented times, as this sector lacks the capability to ride the waves of change being unleashed by the disruptive forces, viz. COVID-19 pandemic and rapid evolution of technology. In a move towards bettering trade facilitation for MSME sector, the Central Board of Indirect Taxes and Customs has relaxed the compliance and security requirements to be followed by MSME sector for obtaining recognition as Authorized Economic Operators. Government may consider introducing an optional program of assisted compliance for MSME sector.

Nationalization of manufacturing

Recent initiatives by the Government of India such as ‘Make in India’, ‘Product Linked Incentive Scheme’ and ‘Atmanirbhar Bharat’, evidently showcase the shift in the trade policy ideology. After pursuing globalization for close to three decades, the Government is now championing trade policy nationalism and de-globalization at full throttle. Another clear indicator of the fact that the Government is actively moving towards trade policy nationalism is the aggressive roll out of licensing restriction or quality standards for various products. Examples of such measures include imposing of prohibition on import of air conditioners with refrigerants which were hitherto freely importable and increase in the coverage of products under the Bureau of Indian Standard’s mandatory product licensing scheme, to name a few.

The changes resulting from Government’s endeavour of nationalization of manufacturing will be the most apparent, as change in tariff rates will have an immediate and direct impact on transaction costs. It is contemplated that Government will continue increasing tariff rates of non-essential imports (i.e. finished goods), while harmonizing tariff rates of parts, components and raw materials required for capturing increased value addition in the manufacturing process undertaken in India. It is expected that there will be a huge gap between the tariff rate of finished product and parts and components, so as to promote manufacturing in India. Such changes in tariff rates will be rolled out in a phased manner so that the pressure of local manufacturing is felt by the business on a long-term basis, and increased value addition is captured in India. Furniture, footwear, commercial vehicles, toys and PCBA of mobile phones are some of the products that have been subjected to tariff rate hikes in the recent past. This year it is expected that Consumer goods and consumer durable sectors are likely to get the most attention from the Government from tariff rate change perspective.

Futuristic expectations from budget for FY 2021-22

It remains to be seen whether measures in relation to the following will be announced in the Annual Budget 2021-22:

  • Expansion of accessibility to Customs Authority for Advance Rulings by establishing benches in Chennai, Calcutta and Bangalore and/ or shifting to online hearings for enhanced reach;
  • Rolling out of substantive measures under Section 143AA of the Customs Act, 1962 to further trade facilitation; and
  • Shifting to surety bonds from bank guarantee in line with the recommendation of the Department of Revenue and the IRDA Working Group Report dated 30.09.2020 on “Suitability of offering of Surety Bond by Indian Insurance Industry”.

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