Besides, the government could also look at rationalising customs duty rates by reducing the number of slabs to just 5 or 6, from the current 8-slab structure, to address the inverted duty structure in light of the free trade agreements (FTAs) that India has signed with various countries and blocs, Price Waterhouse & Co LLP, Principal, Gautam Khattar, told PTI.
Since the free trade pacts have made end products cheaper than the raw materials used in their manufacturing, it is time for the government to reduce customs duties on raw materials, thus addressing concerns of the domestic industry with regard to duty inversion. The Narendra Modi-led government has signed FTAs with several countries, including New Zealand, the UK and Oman, and talks are going on for similar pacts with the EU and the USA.
In the Union Budget for 2025-26, the government had rationalised the customs duty structure, reducing the number of Basic Customs Duty (BCD) slabs to eight, including a zero per cent rate.
“Today, in Customs, we have 8 slabs; the idea is to reduce it to 5-6 slabs with rate rationalisation. Within rate rationalisation, another area which should be looked at is the inverted duty structure vis-a-vis FTAs. As India has, over the years, signed a lot of free trade agreements, and therefore, there are a lot of finished goods which are coming in at a reduced duty, vis-a-vis the raw materials. So it will be apt to look at this duty inversion and consider raw material duty rate reduction vis-a-vis the finished products,” Khattar said. With regard to the Customs dispute locked in litigation, he said an amnesty scheme is being pushed by the industry. “Expectation is to provide certainty so that historic disputes are closed,” Khattar said. As of March 2024, 38,014 cases involving Customs duty of Rs 1.52 lakh crore are locked in litigation.
Khattar said trade facilitation in terms of faster customs clearances is also expected from Budget 2026-27.
