Illegal trade cannot be curbed simply “by raising or lowering tax rates,” said Central Board of Excise and Customs (CBIC) Chairman Vivek Johri. His theory is supported by internal studies.
“In the case of gold, our study shows that there was no correlation between the tax rate and smuggling and despite the reduction in the tax rate, smuggling increased. There have been many cases of tax evasion where the rate is very low – even in sectors where the Goods and Services Tax (GST) rate is 5%,” Johri told a meeting. FICCI against smuggling and counterfeiting activities.
Without naming a commodity, Johri alluded to the fact that tax rates on sin goods such as cigarettes and tobacco products are at levels from which they can no longer be increased. He shared that apart from gold, cigarettes and narcotics were the main items smuggled in and out of the country.
“In 2021-2022, the Customs Department seized 92,000 kilos of narcotics worth ₹17,400 crore and recovered cigarette sticks worth ₹14 crore,” he said. “We concealed gold, narcotics in shipments every other day. Instances of concealment of consumer goods such as mobile phones and cosmetics also became frequent.
What helps illicit trade to grow?
Johri said the Customs Department is devising better ways to combat trade fraud and tax evasion through the misclassification of goods.
He shared that when it comes to commercial freight, the three main areas leading to illegal trade are – misuse of Free Trade Agreements (FTAs), misdeclaration of country of origin and value standards added not respected. Misuse of export promotion programs, misuse of certificates, and misuse of end-use exemptions also occur.
And so CBIC, Johri said, relies on technologies like artificial intelligence and data analytics.
How technology helps fight smuggling
Johri said a large number of narcotics seizures are based on cargo and taxpayer profiling through analysis of CBIC data and the use of videoscopes to help scan the cargo. The customs department had also used canine squads to detect counterfeit notes and narcotics.
“We are setting up rail scanners to scan all containers moving from sea to rail. Shipments at ICDs (Inland Container Depots) are screened based on local customs information. Scanning is a very effective and non-intrusive way,” Johri said.
Blockchain using CBIC
He shared that the CBIC will use blockchain technology for freight movements. A pilot project has already been carried out in warehouses and has shown good results in reducing illicit trade.
Johri said CBIC is now considering using blockchain technology in Special Economic Zones (SEZs) and Export Oriented Units (EOUs). This, along with “extensive use of RFID (radio frequency identification) tagging of export and import containers,” will help CBIC track cargo end-to-end, including at all toll plazas.