Loopholes hamper outcome of import tax relief programs - Study | Sunday Observer

Loopholes hamper outcome of import tax relief programs - Study

Tax exemptions come as a shot in the arm for businesses saddled with various taxes such as Import Duty, Import Cess, Port and Airport Development Levy, Nation Building Tax (NBT) and Value Added Tax (VAT) which are key revenue sources for the government.

Tax relief measures help slash cost and boost savings for organisations.

Predictability, effectiveness and openness of regulatory procedures are essential for a successful outcome.

However, a study on the country’s regulatory effectiveness of import tax exemption schemes by Verite Research (VR), a multi sectoral think tank, brings to light certain loopholes that hamper the outcome of the tax relief program.

The study captures three major shortcomings of the import tax exemptions granted for agricultural equipment such as green houses, drip irrigation system and polytunnels crucial for productivity enhancement of the sector.

Businesses need to secure letters of approval from various agencies to be eligible for tax exemptions. However, the procedure laid out to obtain approval is neither documented nor available to the public leaving businesses to rely on verbal instructions by agencies and visiting them in person to receive instructions.

VR research notes that verbal directives by officers of agencies are inconsistent making them unreliable and the absence of documented procedure favours existing businesses with access to bureaucrats at a personal level over new business who have no such access to guide them through the opaque system to secure eligibility for tax exemptions.

Besides the study notes that the legislation that lists the eligible products identify them by the product name and not by the HS Code and as a result the determination for the applicant’s eligibility and the product for exemption are subject to undue discretion by the officer in charge which diminishes the predictability of the outcome and leaving room for misuse and corruption.

The present approval process for import tax exemptions provides an opportunity for tax evaders to take advantage of the scheme to import products which are not eligible for exemptions in connivance with officials.

VR notes that import statistics may help gauge the impact of the schemes on targeted beneficiaries and spot occasions of misuse. However, the absence of such data enhances the opportunities for abuse.

Selected agricultural equipment are exempt from Customs Duty, Import Cess and VAT to incentivize the uptake of modern agricultural technologies.

Further, the 2017 Budget proposed a 50 percent interest subsidy for farmers, farmer organizations and agro processing institutions to boost productivity through the use of modern agro technologies. - LF

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