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IGST cut: Why industry's pitch for import duty hike may be misplaced

Importers pay Integrated GST (IGST) on top of customs duty at the time of importing goods

Dilasha Seth  |  New Delhi 

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Pitch by businesses for an after (GST) rate cut on over 100 items in the last Council meeting appears misplaced with no apparent correlation between lower (IGST) and increase in imports.

The Central Board of Indirect Taxes and Customs (CBIC) chairman S Ramesh had last week said that the government will look into the suggestions of hiking import duty on consumer durable items to protect the which seeks an increase in for protection from cheap imports.

In the last meeting, Council had decided to cut tax rates on white goods like small screen TVs, refrigerators and washing machines to 18 per cent, from 28 per cent, which came into effect from July 27.

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Importers pay (IGST) on top of at the time of importing goods. But is refundable when goods are sold in the domestic market. rate is the same as State GST (SGST) and Central GST combined. It replaced special additional duty and countervailing duty in the earlier indirect tax regime.

The industry has argued that with GST rate cut, the rate for importers too has come down.

Experts dismissed any correspondence between IGST rate reduction and increase in imports. They contended that there could be some impact if the price elasticity of demand is much more for some compared to the domestic ones.

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Bipin Sapra, partner, EY said that reduction in IGST, in particular, will not have any impact on imports as GST rates for domestic market have also reduced with the same effect. However, he added that the impact could come in only if there is a differential in elasticity in demand for imported versus domestic items.

"Impact on due to rate reduction is possible only if a rupee falls in price of imported items, then will people switch their preference to the imported product despite a rupee fall in the domestic item as well," he said. But there isn't a study to that effect at the moment to prove impact on

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In simple words, the domestic market will be affected only if people would prefer to buy imported TV as it became Re 1 cheaper over a domestic TV that became cheaper to the same effect.

Pratik Jain, partner and leader, indirect tax, PwC India said that lower IGST’s impact on domestic industry doesn't hold as IGST gets offset when sold in the domestic market after the import. "It will matter only in cases where the end consumer is directly importing the product. But there will be no arbitrage per se," said Jain. He added that there is no case for a hike on account of in particular as level playing field has been provided. "However the government may consider a hike in the import duty to push the agenda, like it has been doing over the last year and a half," said Jain.

M S Mani, partner, Deloitte India said that there was no case to hike customs duty on account of GST rate hike.

First Published: Sat, August 04 2018. 00:15 IST
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