MoF may impose 4% CVD on imports after 5% customs cut

NEW DELHI The finance ministry is looking at levying a countervailing duty of up to 4% on all manufactured item imports. This would be WTO-compliant and would essentially compensate for VAT and other local levies borne by the domestic producers of goods, thus levelling the playing field.

At present, only central excise duty is countervailed at the time of imports. ���The finance ministry is in the process of fine-tuning the rates to ensure some protection for the domestic industry,��� said officials.

However, the new levy is unlikely to increase the overall cost to the consumer, as it is likely to be levied only after a 5% cut in basic customs duty.

In fact, the net effect could be that of a marginal lowering of the cost to the consumer. A CVD of up to 4% on all imports is one of the options being considered, along with a 5% reduction in the peak import duty from 15% to 10%.

A reduction in the peak customs duty from 15% to 10% is a near certainty, considering that the Centre has signed FTAs with several Asean nations.

Since customs duties have been lowered for the signatory nations, a higher rate for others would be discriminatory. At 4%, the incidence of tax on imports would still be lower than that on locally-produced goods. This is why there���s a demand from some quarters to impose a 12.5% CVD ��� the VAT rate on most goods.

However, this demand is unlikely to be accepted. The MoF had taken powers to impose a CVD of 4% on all imports to compensate for state-level taxes, including VAT in the ���05-06 Budget.

CVD was, however, levied on imports of ITA-bound telecom items, wherein import duty was brought down to zero as per WTO commitments.

Credit for CVD is available against payment of excise duty. Only software has been exempted from 4% CVD. The government had signalled extending the levy to other products as well.

This will become imperative, especially after India signs free trade agreements with Asean nations within this year, as committed by the government.