Income Tax 28 Jan,2020
Union Budget 2020 & Customs - BAT..!
PRABHAKAR K.S.Proprietor, Shree Tax Chambers

Let me say at the outset that I do not reflexively oppose international trade.

Richard Neal

It is anticipated that the Hon'ble Finance Minister on 1st February, likely to announce a number of tax proposals under both Direct and Indirect Taxes after serious thought of 'NO' roll back..!! later. With respect to Indirect Tax proposals, the 'Customs' regime may have new WTO compliant levy 'Border Adjustment Tax (BAT)'. According to media reports, last month the Department of Commerce proposed to levy a BAT on Imports and setoff certain levies which are not part of GST regime such as clean energy cess on coal, electricity duty, levy on fuel, mandi tax, biodiversity fees, etc.

Commerce Ministry has come up with two options, 1) Levying of BAT & 2) Allowing of non-creditable taxes under proposed Remission of Duties or Taxes on Export Products (RoDTEP). If Finance Minister goes with the first option, then it requires suitable amendments to Section 3 of the Customs Act, 1962 and also additional levy should be compliant with WTO norms.

1. Whether BAT is a Tariff?

No. Unlike 'Tariff, BAT is a non-creditable duty will be levied under Section 3 of the Customs Act, 1962 on Imports in addition to Customs duty'.

2. Whether proposal will be WTO norms compliant?

Likely, since India is a WTO Member, it is under obligation to comply with its norms and upper cap on customs levies.

Article II of General Agreement on Tariffs and Trade (GATT), 1994 version, provides a common institutional framework for the conduct of trade between WTO member countries. GATT, associated legal instruments such as Multilateral Trade Agreements, Plulrilateral Trade Agreements are binding all the members.

Article II - Schedules of Concessions - 2(a) of the General Agreement on Tariffs and Trade (GATT 1947) reads as a charge equivalent to an internal tax imposed consistently with the provisions of paragraph 2 of Article III* in respect of the like domestic product or in respect of an article from which the imported product has been manufactured or produced in whole or in part…

3. If it is not WTO Compliant, then?

The United States and other Member countries may view India's 'BAT' as its latest protectionist measure and drag India to a 'WTO Dispute Settlement Panel' though it is dysfunctional since 11th December, 2019.

Interestingly, Smt. Ursula von der Leyen, President , European Commission, in just concluded World Economic Forum Annual Meeting 2020, Davos, Switzerland, declared that Europe will soon introduce "Border Adjustment Mechanisms" (i.e. similar to India's BAT) on imports from regions of the world which do not penalize carbon usage as much as Europe. As the US always in the confronter mode, Sri. Wilbur Ross, its Commerce Secretary also warned in tougher words 'depending on what form the carbon tax takes, we will react to it - but if it is in its essence protectionist, like the digital taxes, we will react..!!

Let's wait till 1st February, 11.00 a.m. to know India's likely proposal and reactions or counter reactions of others..!!