Tax & Accounting Blog

Ease of Doing Business Initiative and Indian Customs

Blog, Global Trade, ONESOURCE June 17, 2016

Ease of doing business is now a very familiar tune in India and with the Indian government going ahead with the WTO’s Trade Facilitation Agreement (TFA), it is believed this initiative will help India to further boost its trade growth through the reduction of trade costs while meeting India’s ambition to reach USD 900 billion in export volume by 2020, which is nearly double from today’s export volume.

Per the World Trade Organization (WTO) Trade Facilitation Agreement, this initiative has the potential to increase global merchandise exports up to $1 trillion per annum globally. The TFA, which aims at simplifying customs procedures, increasing transparency and reducing transactions cost, is being pushed by some of the larger developed nations, such as the U.S. [1], and is designed to strengthen their slumping economies through unhindered international trade.  By reducing red tape and creating a uniform process with customs, the result should be an ease in trade relations between countries.

The most recent World Bank report for “Ease of Doing Business” stated that India has improved its ranking from 134 (revised) in 2015 to 130 in 2016. The government of India has set itself a time limit of December this year to button down and roll out more investor-friendly measures and achieve a ranking in the top 50 within the period of the next 2 years. According to the 2016 Global Retail Development Index (GRDI), which ranks top 30 developing countries for retail investment worldwide, a pick-up in GDP growth and better clarity regarding FDI regulations has helped India achieve the second ranking position among 30 developing countries, noting a great jump of 13 positions from 2015.

In the spirit of the TFA, the Indian government has implemented a few initiates to improve the customs clearance procedures.  One of these actions is to reduce the number of documents required for export and import further demonstrating India’s strong commitment by adding additional measures for ease of doing business.

Mandatory Documents Required For Export and Import Reduced To Three Each:

An Inter-ministerial committee, headed by Director General of Foreign Trade (DGFT), submitted its report titled “Trading Cross Borders”. Based on the recommendations of the report, the Reserve Bank of India has agreed to do away with the ‘Foreign Exchange Control Form (SDF)’ by incorporating the declaration in the ‘Shipping Bill’ (for exports).  Further, the ‘Foreign Exchange Control Form (Form A-1)’ (for imports) will be dispensed with.

Customs has also agreed to merge the ‘Commercial Invoice’ with the ‘Packing List’ and have issued a Circular for accepting ‘Commercial Invoice cum Packing List’ that incorporates the required details of both the documents. Exporters and importers, however, still have the option of filing separate ‘Commercial Invoice’ and ‘Packing List’ documents, if they so desire. The Shipping Ministry has also agreed to do away with the requirement of the ‘Terminal Handling Receipt’ by implementing an online process.

As a consequence, after issue of the DGFT’s Notification dated 12-3-2015, only three documents would be mandatory for export and import processing.

Exports: Bill of Lading/ Airway Bill; Commercial Invoice cum Packing List; Shipping Bill/ Bill of Export

Imports: Bill of Lading/ Airway Bill; Commercial Invoice cum Packing List; Bill of Entry

Additionally, India is subsequently phasing out the submission of manual documents enabling exporters, importers, shipping lines and airlines to file customs documents online with a digital signature.  This has eliminated the need for hard copies of documents for processing and greater increased the speed of transaction. This changes and the reduction in the number of mandatory documents should lead to a corresponding reduction in transaction costs and time, a plus for companies in their supply chain.

As part of the “Ease of Doing Business” initiatives, the Central Board of Excise and Customs launched Customs SWIFT (Single Window Interface for Facilitating Trade).

SWIFT provides a single-point interface for Customs clearance transactions and is expected to reduce the amount of documentation and costs. It is expected to cover and benefit over 97% of India’s imports. Importers will no longer be required to run around to get approvals from multiple government agencies for their consignments.

The single window will connect over 50 offices of six government agencies with the Indian customs department.  For example: Food Safety Standards Authority of India (FSSAI); Department of Plant Protection, Quarantine and Storage; Drug Controller; Animal Quarantine; Wild Life Crime Control Bureau and Textile Committee.

With the roll-out of SWIFT, the Central Board of Excise and Customs (CBEC) also introduced an Integrated Risk Management facility for Partner Government Agencies (PGAs), which will ensure that consignments are not selected by agencies routinely for examination and testing, but based on the principle of risk management.

With this development, Indian Customs is poised to be amongst a few select countries that have functional Single Window clearances. The Single Window system is expected to be a crucial implementation of trade facilitation measures for goods cleared at the country’s points of entry and exit. These measures and an added 24X7 customs clearance process that has been extended to 19 seaports and 17 airport complexes and defers duty payment in selected categories will enable the release of cargo quicker

These are but a few changes the Indian government is taking to implement efficiencies in the country’s import and export procedures.  The expectation is to save large sums of money for importers and exporters through the reduction of trade-related costs and delays and change the rankings of India in a positive way for “Eases of Doing Business”.

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Source Information

https://www.wto.org/english/news_e/news16_e/fac_21apr16_e.htm

http://www.doingbusiness.org/data/exploreeconomies/india/

http://pib.nic.in/newsite/PrintRelease.aspx?relid=116935

[1] In addition to India, the following WTO members have also accepted the TFA: Hong Kong China, Singapore, the United States, Mauritius, Malaysia, Japan, Australia, Botswana, Trinidad and Tobago, the Republic of Korea, Nicaragua, Niger, Belize, Switzerland, Chinese Taipei, China, Liechtenstein, Lao PDR, New Zealand, Togo, Thailand, the European Union (on behalf of its 28 member states), the former Yugoslav Republic of Macedonia, Pakistan, Panama, Guyana, Côte d’Ivoire, Grenada, Saint Lucia, Kenya, Myanmar, Norway, Viet Nam, Brunei, Ukraine, Zambia, Lesotho, Georgia, Seychelles, Jamaica, Mali, Cambodia and Paraguay, Turkey, Brazil, Macao China, the United Arab Emirates and Samoa.