Government Aims to Streamline Trade by Reducing Customs Duty Rates

The government aims to reduce the number of customs duty levies from around twelve to five, according to Revenue Secretary Sanjay Malhotra. This move is part of a broader effort to rationalise duties and simplify the rate structure. The reduction in customs rates is expected to minimise classification disputes, Malhotra explained when discussing the Budget proposal for a comprehensive review within six months.

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Finance Minister Nirmala Sitharaman announced on Tuesday that the government will conduct a thorough review of the customs rate structure over the next six months. This review aims to simplify trade, eliminate duty inversion, and reduce disputes. Malhotra emphasised that the goal is to lower the number of tax rates on imports and exports from double digits to possibly four or five, excluding exceptions.

Customs Duty Rationalisation

Central Board of Indirect Taxes & Customs (CBIC) Chairman Sanjay Kumar Agarwal stated that this rationalisation exercise would be completed within six months. The proposal will then be included in the next budget in February 2025. Agarwal mentioned, "In 6 months time we will definitely look into the various rates and try to bring certain rationalisation in that."

The FY25 Budget has already reduced customs duties on several items, including mobile phones, mobile PCBAs, mobile chargers, 25 critical minerals, gold, ferro nickel, blister copper, oxygen-free copper for resistor manufacturing, and specific parts for connector manufacturing. Conversely, customs duty was increased on printed circuit board assemblies (PCBA) for specified telecom equipment and ammonium nitrate. Exemptions on solar glass and tinned copper interconnect were also withdrawn.

Boosting Domestic Manufacturing

Agarwal highlighted that these changes aim to boost domestic manufacturing and diversify supply chains. He said, "The underlying philosophy behind the customs duty rationalisation made in FY25 budget is to boost domestic manufacturing." The adjustments are designed to make inputs available to domestic industries where such inputs are not produced locally.

Additionally, corrective measures have been implemented by increasing customs duties on items imported at unusually low prices that harm domestic industries. Duty inversion on certain items has also been addressed. Agarwal noted that these steps are intended to support domestic manufacturing and strengthen supply chains.

The effort to merge multiple rates into fewer categories aims to simplify classifications and reduce disputes. Malhotra explained, "More the rates, more are the classification disputes." By consolidating these rates, the government hopes to create a more straightforward system for traders.

The comprehensive review of customs rates is part of a larger strategy to enhance ease of trade and address issues related to duty inversion. This initiative reflects the government's commitment to creating a more efficient and less contentious customs framework.

The conclusion of this exercise will be presented in next year's Budget. The government remains focused on rationalising customs duties to support domestic industries while ensuring fair competition with imported goods.