AN Indian Finance Ministry's working paper has called for slew of foreign trade-centric taxation reforms and other initiatives to give a big push to the country's exports.

The paper captioned ‘Emerging Global Economic Situation: Its impact on India's Trade and some Policy Issues' says: “While the Government has initiated second generation reforms, in the trade sector these could include, further lowering of tariffs to ASEAN levels, while carefully taking note of domestic concerns and simultaneously removing duty benefit schemes which may become redundant in a low tariff regime.”

Authored by Dr. H.A.C. Prasad, Senior Economic Adviser, Finance Ministry, the paper contends a more conducive environment for trade in services can be created by liberalizing foreign direct investment (FDI) inflows as FDI and trade in services have a close relationship given the nature of intra-firm trade of multinational parent firms with affiliates.

It says: “Rationalizing taxes in services like shipping and telecom, going forward with totalization agreements, streamlining domestic regulations like licensing requirements & procedures and technical standards can also help in the growth and export of services.”

There are many trade facilitation measures which can help export sector without any cost to the Government exchequer and need to be considered. In general there is an urgent need for simplifying the multiple documentation procedures.

It points out that “India requires 16 export documents to be cleared, while China needs 5, with good practice economies like France needing 2. Time to export is 16 days for India, and 5 for Denmark. Cost to export is $1095 per container, compared to $500 in China, and $450 in Malaysia.”

The situation is similarly cumbersome in the case of imports. The number of import documents that need clearance is 9 in India, 5 in China, and 2 in France. Time to import is 20 days in India, and 4 in Singapore. Cost to import is $1070 per container in India, $545 in China, and $439 in Singapore.

As put by the Paper, “A list prepared by the exporters of the documents and procedures needed in the Indian case shows that on an average an exporter is required to sign at about 130 places to complete an export transaction. Similar procedures are there on the import side. These need to be reduced to the barest minimum.”

To promote purchase of Indian goods by foreign tourists, the paper has called for ushering in of VAT refund system for such purchases. It says: “VAT is refundable in cash immediately in Thailand. In Singapore and other countries also it is refundable. India should introduce this system. This will increase the demand for purchases from India by foreigners visiting India.”

As regards sector-Specific tax issues constraining foreign trade, the paper notes in the case of software & electronic goods, issues like retrospective amendments in the definition of royalty constrain international transactions as the companies cannot pass on the tax incidence to the foreign software suppliers.

According to the Paper, India should exercise caution on Information Technology Agreement (ITA)-II as ITA-I has severely affected our electronic sector; and also while including any electronic components and parts in any future FTA.

Discussing specific instances of inverted duty structure that are hurting domestic production, the Paper cites the case of gem and jewellery sector.

It says: “There is also the inverted duty structure due to Free Trade Agreement (FTA) under the India-Thailand FTA, resulting in finished jewellery from Thailand being cheaper than primary gold (raw material) available in India. This will affect Indian jewellery manufacturing industry and needs to be addressed.”

Referring to hike in import duty on gold in March 2012 to rein current account deficit, the Paper says that instead of increasing the import duty on gold, VAT could be increased from 1 percent to 5 percent on sales of bullions, coins, primary gold and sale in Exchange Trade Fund (ETF) to private individuals (Unregistered Dealers).