Op­tic fi­bre network reaches 83,000 gram pan­chay­ats

FICCI Business Digest - - Content -

ever

won­dered about the un­holy nexus be­tween in­crease in tax­a­tion, il­licit trade and lower rev­enues for de­vel­op­ment? It's not far-fetched, it's true. In­creased tax­a­tion and duty rates lead to in­creased il­licit (or un­law­ful) trade and ul­ti­mately de­feats the pur­pose of in­crease in tax­a­tion due to al­lo­ca­tion of more funds in se­cu­rity ex­pen­di­ture to curb ter­ror­ism, a part of which is fi­nanced by il­licit trade.

No coun­try in the world should be more alive to this as­pect of tax­a­tion than In­dia where the nexus be­tween in­crease in taxes and du­ties and il­licit trade is for­mi­da­ble.

The FICCI CAS­CADE- KPMG In­dia re­port, quot­ing data of US Home­land Se­cu­rity, says that the num­ber of ter­ror­ist ac­tiv­i­ties in In­dia in­creased to 927 in 2016 from 798 in 2015, show­ing an alarm­ing in­crease of ap­prox­i­mately 16 per cent. Neigh­bour­ing Pak­istan, how­ever, has slipped by a po­si­tion from 2015 to oc­cupy the fourth spot in the 2016 re­port. A num­ber of na­tions such as Afghanistan, Pak­istan, Nige­ria and Ye­men, on the other hand, wit­nessed lesser num­ber of ter­ror­ist ac­tiv­i­ties in 2016, com­pared to 2015. Fur­ther, Iraq, Afghanistan, Pak­istan, In­dia and Nige­ria ac­counted for nearly 55% the global ter­ror­ist at­tacks in 2015. Nearly 75 per cent of all deaths in 2016 due to ter­ror­ist at­tacks took place in five coun­tries (Iraq, Afghanistan, Nige­ria, Syria, and Pak­istan).

But how ex­actly does in­crease in tax­a­tion led to de­crease in de­vel­op­men­tal rev­enues? In­crease in tax­a­tion leads to in­crease in mar­ket price, mak­ing pro­duc­tion less prof­itable and forc­ing man­u­fac­tur­ers to adopt al­ter­na­tives. This lower the sup­ply of gen­uine prod­ucts and fur­ther in­crease in prices. Price in­crease fu­els a hike in coun­ter­feit­ing and smug­gling, the spoils of which go into the fi­nanc­ing of ter­ror­ism and or­gan­ised crime. Mea­sures to curb the me­nace de­mand an in­crease in se­cu­rity ex­pen­di­ture from the tax re­serves by the state, thus de­feat­ing the very pur­pose of in­creased tax­a­tion.

The ex­is­tence and op­er­a­tion of il­licit trade vis-à-vis coun­ter­feit­ing and smug­gling has been an en­dur­ing prob­lem in In­dia that has es­ca­lated in scope and mag­ni­tude, im­pact­ing in­dus­tries, gov­ern­ment, economies and, the health and safety of the con­sumers. Smug­gling, es­pe­cially, has been a point of con­cern for the In­dian ad­min­is­tra­tion for the past many decades, with nar­cotic drugs, gold and cig­a­rettes ac­count­ing for the ma­jor smug­gled goods. As per the Direc­torate of Rev­enue In­tel­li­gence (DRI) es­ti­mates, the value of seizures for gold and cig­a­rettes in 2016-17 stood at INR 435 crore and INR 78 crore, re­spec­tively and the seizure value for nar­cotic drugs in 2016-17 were INR 4885 crore, thus sug­gest­ing the large mag­ni­tude of smug­gling in­dus­try in In­dia.

Ac­cord­ing to var­i­ous law en­force­ment agen­cies, so­phis­ti­cated an­ti­smug­gling de­vices have been in­stalled at air­ports and sea­ports to check and scan var­i­ous con­tain­ers and ship­ments en­ter­ing the coun­try. How­ever, it seems to have had lit­tle ef­fect with smug­glers find­ing in­no­va­tive ways to con­tinue their ne­far­i­ous ac­tiv­i­ties, spe­cially with large and por­ous land bor­ders.

The seizures in the re­cent past are only the tip of the ice­berg of a much larger and threat­en­ing op­er­a­tion in the coun­try. For ev­ery seized con­sign­ment there are a large num­ber of con­sign­ments that escape sur­veil­lance and find their way into the mar­ket.

In In­dia, smug­gling takes the form of mis-dec­la­ra­tion, un­der­val­u­a­tion, mis­use of end-use and other means. In 2016, the seizure value for mis-de­clared goods stood at INR 1,187 crore, while that of un­der­val­u­a­tion of goods stood at INR 254 crore. The seizure value from mis­use of end use was at INR 2,780 crore, see­ing a rise from INR 953 crore in 2015, an in­crease of 190% in 2016 over the pre­vi­ous year.

The most com­monly coun­ter­feited and smug­gled goods are tobacco, cig­a­rettes, elec­tronic items, gold, ma­chin­ery and parts, al­co­holic bev­er­ages, auto com­po­nents, Fast Mov­ing Con­sumer Goods (FMCG) and mo­bile phones.

There are cer­tain fac­tors that drive the growth of il­licit trade in the in­dus­try. Higher tax­a­tion rates, avail­abil­ity of cheaper al­ter­na­tive, lack of aware­ness and lack of en­force­ment mech­a­nisms are key fac­tors that en­cour­age the con­sumers to opt for coun­ter­feits, smug­gled or pi­rated goods with­out real­is­ing the af­ter ef­fects of pro­mot­ing the il­licit trade.

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