India Budget: GTRI calls for simplified customs duty structure in Union Budget 2025

Union Budget: The Indian government should simplify the customs duty structure by reducing the number of slabs from over 40 to 5 in the upcoming Budget for the next fiscal year, GTRI said. It should also ensure that raw materials are taxed lower than finished goods in the upcoming Budget to reduce import costs, boost manufacturing, and increase exports, the think tank GTRI said.

GTRI called for an inter-ministerial review of tariff policies to refine India's framework, avoid international scrutiny, and align tariffs with national goals.

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GTRI suggested lowering India's average tariff to about 10%, saying this could be done without a significant revenue loss.

Currently, 85% of tariff revenue comes from just 10% of product categories, while 60% of product categories contribute less than 3% of the revenue.

The report noted that customs duties, once a major revenue source for the government, now account for only 6.4% of gross tax revenue, compared to corporate tax (26.8%), income tax (29.7%), and GST (27.8%).

Given this decline, GTRI suggested that customs duties are no longer a key revenue source and should instead be used strategically to support domestic manufacturing and global trade.

"Simplifying the tariff structure by reducing slabs from over 40 to 5, capping maximum tariffs at 50%, and ensuring raw materials are taxed lower than finished goods would foster economic growth, reduce import reliance, and promote exports," said the report, prepared by GTRI founder Ajay Srivastava and trade expert Satish Reddy.

The report also recommended ending IGST, cess, and Basic Customs duty exemptions under the MOOWR (Manufacture and Other Operations in Warehouse) scheme. This would support local capital goods manufacturers and align with the Make in India initiative.

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Currently, the scheme allows duty-free import of machinery, even if the goods produced using that machinery are sold domestically.

"This creates an unfair disadvantage for local capital goods manufacturers, who must pay GST on machinery sold in India. Additionally, firms outside the MOOWR scheme pay full import duties and IGST when importing machinery for domestic sales," the report said.

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It further suggested reforms to the regulatory framework of Customs Cargo Service Providers (CCSPs) to reduce operational costs and improve trade logistics.

The government should bear the costs of customs officers performing sovereign duties instead of passing these expenses on to CCSPs, the report said. This would help reduce trade expenses.

The report also emphasized the need to rescind outdated customs notifications and replace them with self-contained, clear duty structures.

"Providing a single, comprehensive duty sheet will make customs processes more transparent and business-friendly," it said.

It added that businesses often require expert help to interpret the maze of overlapping customs notifications issued over decades.

Many notifications are not self-contained and amend older ones, some of which date back over 20 years, the report highlighted.

Finance Minister Nirmala Sitharaman is likely to present the Union Budget on February 1.

(With PTI inputs)