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

SOURCE: DOWN TO EARTH