Government Proposal for Self-Certification in FTAs

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Context

• To promote ease of doing business, the government has proposed self-certification regarding the proof of origin for products imported from an FTA nation to seek duty concessions.

Current Requirement

• Importers must furnish a proof or a 'certificate of origin' from the FTA partner to seek duty concessions.

ARTICLE ON RULES OF ORIGIN:

https://www.iasgyan.in/daily-current-affairs/rules-of-origin

MUST READ ARTICLE ON FTA: https://www.iasgyan.in/daily-current-affairs/free-trade-agreement-48

Proposed Changes

• Section 28DA of the Customs Act is being amended to accept different types of proof of origin as provided in trade agreements.
• The term "proof of origin" will now include both a certificate of origin and self-certification.
• This amendment aligns Section 28DA with new trade agreements that provide for self-certification.

Definition of Proof of Origin

• Proof of origin means a certificate or declaration issued according to a trade agreement, certifying that the goods meet the country of origin criteria and other requirements specified in the agreement.

Impact on Importers

• Importers can obtain FTA tariff preferences by submitting either a certificate of origin issued by an agency in the FTA partner country or by self-certification by the exporter.
• Each FTA specifies the acceptable method to the importing country's customs.

CAROTAR Rules and Importer Responsibilities

• Section 28DA of the Customs Act of 1962 deals with FTAs Rules of Origins and CAROTAR (Customs (Administration of Rules of Origin under Trade Agreements) Rules 2020).
• Importers must provide adequate proof that goods claiming FTA tariff concessions meet all rules of origin criteria, which might impose additional conditions beyond those agreed in the trade pact.

Responsibilities

• Importers need to have sufficient information about regional value content and product-specific criteria specified in the trade agreement.
• Having a certificate of origin does not relieve importers of the responsibility to exercise reasonable care.

Changes in Tax Exemptions for Corporate Gifts

• The government has proposed changes in tax exemptions related to corporate gifts, specifically under section 47(iii) of the Income Tax Act.

Current Exemptions

• Companies, firms, and trusts can give away assets without facing capital gains tax, considering these actions as gifts.
• The recipient of the gift is taxed under section 56(2)(x) of the Act.

Proposed Changes

• Starting April 1, 2024, the exemption under section 47(iii) will only apply to individuals and Hindu undivided families.
• Non-individual entities like companies and firms will no longer qualify for the exemption under section 47(iii).

Impact on Corporate Restructuring and Gifts

Tax Implications

• Companies giving gifts will not qualify for exemption, but taxation might not arise if there is no consideration.
• Certain situations prescribe a "deemed consideration," such as unlisted shares, immovable properties, or business transfers, where companies may be taxable on capital gains based on deemed consideration.

Clarifications

• The amendment clarifies that many companies were already dissuaded from gifting assets due to section 56(2)(x).
• Family settlements should remain unaffected as they rely on re-arranging what already belongs to family members rather than on gift exemptions.

Conclusion

• The proposed amendments aim to streamline the process of seeking duty concessions under FTAs through self-certification and close tax exemption loopholes for non-individual entities.
• These changes promote ease of doing business while ensuring compliance with trade agreements and tax laws.

CAROTAR RULES: https://www.iasgyan.in/blogs/carotar-rules-2020

PRACTICE QUESTION Q. Discuss the challenges and opportunities in promoting ease of doing business in India while ensuring compliance with trade agreements and tax laws. How can the government strike a balance between simplifying procedures for businesses and maintaining robust regulatory standards?

SOURCE: DOWN TO EARTH