Statsguru: Customs duty revisions in Budget aimed to boost manufacturing

Revisions in Customs duty for multiple products in the recent Budget were done to spur domestic manufacturing, promote ease of trade, and reduce disputes.

India’s Customs duty collections are expected to exceed Rs 2 trillion for the third consecutive year in 2024-25 (FY25), according to the recent Budget estimates. The share of Customs duty in India’s gross tax receipts has more than halved in the past decade. It will account for 6.2 per cent of the gross tax collections in FY25— the lowest since FY16.

Customs duty collections are growing at a slower pace than income tax. Taxes on income have grown at a compound annual growth rate of 19.2 per cent between FY20 and FY25, compared to a 16.8 per cent growth rate in Customs duty collections in the same period. Overall central tax collections and corporate taxes have grown at a slower pace.

India’s import duty structure is also likely to undergo a review in the coming months, with an eye on rate rationalisation and simplification. The duty charged by India on imports was higher in the recent year, with rates closer to those charged during the pandemic. Besides, the highest duty on imports has not only doubled in 2023 compared to 2019 but the gap between the average rate charged and the maximum duty imposed is also widening, according to WTO data.

The database also shows that in 2023, India imposed the maximum tariff on textiles (379 per cent) followed by clothing (239 per cent), cereals and beverages (150 per cent) and transport equipment (125 per cent).

India has always resisted the pressure to cut import duty on agricultural imports to protect domestic producers. The average duty levied on agri imports in 2023 was the highest since 2017. 

Non-agriculture products attracted a 9 per cent levy compared to 5.5 per cent seven years ago.

Before the rates on certain items like gold, silver and mobile phones were slashed in the recent Budget, India was not only levying higher rates compared to advanced countries, Brics (Brazil, Russia, China and South Africa) and the European Union but was also doing so on a wider range of products.