Customs Duty to be Phased Out Slowly, Says Rev Secy

The government proposes to slowly phase out the hike in Customs duties levied earlier for protection of domestic manufacturing. High, arbitrary Customs duty rates breed inefficiencies and there is a need to have “judicious use” of Customs duty, Finance Secretary Ajay Bhushan Pandey said.

“…we will ensure that on the Customs duty front, we have a very judicious use of Customs duty. Having arbitrary high Customs duty breeds inefficiencies and the consumers as well domestic manufacturing suffer. So, what is required is a reasonable amount of Customs duty for a level playing field, and it has to also be phased out slowly once a sector has developed,” Pandey said.

This marks a departure from the earlier stance as the government has progressively raised import duties for a number of manufactured products including television, mobiles and household appliances over the last six years. In its previous tenure, the NDA government had engaged in a tariff hiking spree covering over 400 items ranging from apples and almonds to cell phone parts.

In its research report on Monday, State Bank of India also stated that the country needs to focus more on increasing productivity and less on import tariffs in its quest for Atmanirbhar Bharat. “After 2004, India saw rapid reduction in AHS Weighted Average (%) across all product categories. Despite the reduced tariffs, India has one of the highest weighted average tariffs in the world of manufacturers, comprising both consumer and capital goods,” the SBI report said.

During 2004-2017, India’s share in global manufacturing increased by 1.5 percentage points, while China gained a 18 per cent share, the report said.

A closer look at the regression data of India’s imports of raw materials, intermediate goods, capital and consumer goods in the weighted average of import tariffs during 1990-2017 shows that with even 1 per cent increase in tariff, the imports decline by around $2 billion on an average, thus making a case for improving the manufacturing base of the country, it said. In the export basket, the highest share is of consumer goods, which are manufactured products, followed by intermediate goods and these two attract highest tariffs in the import basket, thus making a case against the fact that higher tariffs have not protected these industries. “Other countries with much lower tariff structures have built manufacturing bases, which have helped them in their exports,” it said.

The government had levied a 10 per cent basic Customs duty for smartphones effective July 2017 on covered cellular mobile phones, and parts like charger, battery, keypad, USB cable, which was later raised to 15 per cent in December. The duty on TV sets was raised to 20 per cent from 15 per cent in December 2017. In February 2018, Customs duties were hiked across 46 items spanning imported branded goods ranging from fruit juices to mobile phones. In Budget 2020-21, the government had hiked import duties on over 100 categories of products across sectors, including certain food items, furniture, footwear, household appliances, parts of mobile phones, and toys. More recently, in October, a 5 per cent Customs duty was introduced on open cell — a key component in TV panel manufacturing.

The Finance Secretary also said that the government has moved towards plugging the loopholes for misuse in rules of origin for imports. The earlier rules of origin would result in a lot of misuse as unscrupulous elements would try to bypass the rules, which in turn, would impact domestic manufacturing. “In the last budget, we amended the Customs Act, new rules of origin have come which have become effective from September this year and now importers are bound to specify what is the value addition is happening so that they have taken Customs duty exemptions. So, such misuse used to happen, which used to affect domestic manufacturing, deprive the domestic manufacturer from a level playing field. So with these things, domestic manufacturing, economy will move forward,” he said.