Peak Customs duty may be cut to 20%

NEW DELHI: The stated policy of the government to bring down import duties to Asean levels and the peak rate to 20% in â€˜04-05 need not be a casualty, with the vote on account pushing back the presentation of a proper budget till after Lok Sabha polls. The government is weighing the option of reducing the peak customs duty rate from 25% to 20% ahead of the polls. While deliberations are on at the highest level, a final decision on the timing is still awaited, said a top finance ministry official. (Will this move help in bettering trade relations with Asean nations?) India has already committed to reduce tariffs to Asean levels. Given the comfortable foreign exchange reserve position and the upward pressure on the rupee, a cut in the peak customs duty rate in the near term could help bring down input costs for the manufacturing sector. It would also signal the governmentâ€™s sustained commitment to reforms. The government will, however, have to factor in political implications of any such move, with the same duty cut likely to be welcomed by one industry (the user of the import) and condemned by another (the producer of the import). The impact of a lower duty on various industries and the revenue implications are currently being assessed. The government had reduced the peak customs duty from 30% to 25% last budget, saying the cut was an integral part of economic reforms in the country. The revenue loss from a 5% reduction in the peak rate was estimated at Rs 2,100 crore. The peak rate and the average tariff levels have progressively come down from around 150% in 1991 to 25% in â€˜03. However, tariffs in India are still among the highest in the world. In 1999, for instance, of 122 countries, India had the third highest tariff after Cambodia (35%) and Pakistan (46.5%). Emerging economies like the Czech Republic, Turkey, Chile, Russia had average rates ranging from one-fifth to two-third of Indiaâ€™s 32.2%. The Arvind Virmani Committee (December â€˜02) had made out a case for two-phase reforms. It had suggested a near uniform customs duty rate of 10% in â€˜06-07, followed by a single uniform basic customs duty of 5% in the second phase ending â€˜10-11. The Kelkar panel had suggested a four-tier tariff structure, while advocating a 5% cut in the peak customs duty every year. Most Asean rates are to be reduced to 0-5% under the Asean Free Trade Agreement (AFTA), which will reduce the average rates in Thailand, Indonesia and Malaysia even below those in India. Arvind Virmani, director of ICRIER, reckons that India will reap the maximum benefits from AFTA only if tariffs are lowered at a faster pace. The government is confident of achieving the budgeted customs target of Rs 49,350 crore in the current fiscal as collections have kept pace with the moving budget targets. Govt may not cut I-T The CBDT has told the goverment that changes in personal tax slabs would not be feasible without changes in the I-T Act. With the vote on account an almost certainty now, Centre still has the option of introducing an ordinance if it wants to cut rates, but CBDT officials said such a move is unlikely.

Peak Customs duty may be cut to 20%

Deliberations are on to bring down import duties to Asean levels from the present 25 per cent before polls.

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