The cross-border tax landscape in India has been undergoing exponential changes. With frequent modifications in policies due to the disputes on various export promotion schemes at different forums including the World Trade Organisation, increasing levels of enforcement is warranted to achieve the twin objective of legitimate revenue collection and promotion of ease of doing business, while ensuring hassle-free and appropriate compliances.
Technology has become an integral part of the tax domain due to evolving regulations, compliance requirements and the need for swift implementation. In the recent past, the Government of India manifested giant plans for tax digitisation around Customs Duty and Foreign Trade Policy. The digitisation process focuses on ‘ease of doing business’ and several reform measures to smoothen cross-border trade with the help of technology and encourage trade to automate tax compliances.
However, the adoption of digital transformation in cross-border trade has not been growing at the same pace as those of other domestic taxes like GST, Income Tax, and other tax laws. This slow adoption can be attributed to the complex nature of regulations and the need for compliance under various laws governed by different Ministries.
Two key regulations that drive the transactions related to cross-border trade for taxing the transaction and providing incentives/benefits to the taxpayers are the Customs Act, 1962 along with the rules there-of (Customs Law) and Foreign Trade Policy and procedures (FTP). It is also important to reckon that these two regulations are governed by different Ministries and have multiple portals to carry-out mandatory compliance. Further, as per the regulations, certain transactions within the domestic area are also being considered under the purview of these regulations to provide tax benefits and use separate portals for compliances and filings.
The Indian Customs Electronic Gateway (ICEGATE) is the national portal of Indian Customs offering e-filing services to the trade, cargo carriers and provides a centralised filing system for transactions related to cross-border trade. However, the ICEGATE does not provide e-filing for specific transactions under the ambit of cross-border transactions like import and export by courier and baggage, transactions by Special Economic Zone (SEZ) and Free Trade Warehousing Zone (FTWZ). Trade is constrained to the use of different portals like SEZ Online and ATITHI in addition to ICEGATE. Further, benefits provided to exporters are regulated mainly by the Directorate General of Foreign Trade (DGFT). They use a separate portal to facilitate the compliances.
The impetus of tax digitalisation was to simplify the process with increased efficiency, compliance, and enhanced processing, leading to taxpayers' satisfaction. Trade needs to use technology extensively to control various documentations related to cross-border trade, which will help comply with the provisions of law and avail the benefits under the ambit of Customs Law and FTP. The Government has also started using technology to monitor taxpayer activities, using artificial intelligence and blockchain technology, and has sculptured platforms like ‘Advanced Analytics in Indirect Taxation’ for data sharing between different portals and platforms for analysis to combat tax avoidance and fraud.
However, navigation through multiple platforms for e-filing of documents to comply with reporting requirements and avail tax benefits causes hardships and defeats the Government’s objective of ease of compliance. Businesses face challenges due to complex data management, sourcing of data from different platforms for reconciliation, etc. The use of different platforms creates challenges in achieving the Government’s goal of providing a 360 degree view of transactions to combat tax avoidance.
Realising the obstacles, the Government introduced a provision in last year’s Union budget to create a Common Customs Electronic Portal to facilitate registration, filing of Bills of Entry and Shipping bills, payment of duty, and to view and respond to show cause notices, audits, and other related inquiries by customs authorities. The Government recently launched the Customs Information Portal to provide free access to information on all Customs procedures and regulatory compliance for nearly 12,000 Customs Tariff Items. However, the prime objective of digitisation - to provide a seamless platform to taxpayers for compliances remains an unfulfilled dream in the absence of a single, common platform.
It is thus expected that the Government will fast-track the creation of the Common Customs Electronic Portal. It would also be appropriate to expect that the current ICEGATE, SEZ online, DGFT and other platforms would converge into a single, integrated gateway to bring all related compliances under one umbrella, which will also, help taxpayers in the Post Clearance Audit, Data reconciliation, Tax analytics, monitoring of various tax benefits and its utilisation, efficient data exchange between various trade partners. In this regard certain key announcements and related roadmaps are expected in the Union Budget 2022-23.
Gunjan Prabhakaran, Partner and Leader - Indirect Tax and Krishna Barad, Partner - Customs and International Trade, Indirect Tax, BDO India.