Balancing multiple government objectives, including promoting clean energy, curbing non-essential imports, boosting domestic manufacturing and raising revenue, FM Nirmala Sitharaman announced a slew of changes in Customs duty in the 2019-20 Budget presented on Friday.
Customs duty was cut on several inputs to incentivise domestic production and increased on finished products to garner additional revenues. Import duty has been cut under nine heads to provide a level playing field to reduce cost, especially in clean energy segment and raw materials, and increased under 36 heads to provide level playing field to domestic players.
“On the Customs side my proposals are driven with the objectives of securing our borders, achieving higher domestic value addition through make in India, reducing import dependence, protection to MSME sector, promoting clean energy, curbing non-essential imports, and correcting inversions,” said Sitharaman. With these measures, government is expecting a 19 per cent growth in Customs collection to Rs 1.5 trillion for 2019-20. This is Rs 10,500 crore higher than the original revenue target of Rs 1.45 trillion.
Supporting the defence sector, the FM exempted import of defence equipment that are not being manufactured in India from basic Customs duty. At the same time, Customs duty has been reduced on inputs or capital goods used to manufacture CRGO steel, specified electronic items like Camera module for cellphones, etc.
To address the widening current account deficit, Customs duty on non-essential imports like gold, silver and platinum was increased from 10 per cent to 12.5 per cent. India’s current account deficit widened to a six-year high of 2.1 per cent of the gross domestic product in 2018-19.
To provide domestic industry a level playing field, basic Customs duty was increased on items such as cashew kernels, PVC, Vinyl flooring, tiles, metal fittings, mountings for furniture, auto parts, certain kinds of synthetic rubbers, marble slabs, optical fibre cable, CCTV camera, IP camera, digital and network video recorders etc.
“The increase in Customs duties on goods where domestic capacity exists such as split ACs, CCTV cameras and so on would incentivise local manufacture in addition to improving collections. The changes seem to be well thought out as there is also a reduction in Customs duties on raw materials such as naptha, EDC etc used in manufacturing finished goods in India,” said M S Mani, Partner, Deloitte India.
Further, exemptions from custom duty on certain electronic items that are now being manufactured in India has been withdrawn. To encourage domestic publishing and printing industry, a 5 per cent Customs duty has been imposed on imported books.
“The changes proposed are aligned to the government’s policy on Make in India; Clean India, Digital India and reducing tax evasion. For example, the exemption for the defence sector is limited to goods that are not manufactured in India. Similarly the exemptions available for electronic items being manufactured in India has been withdrawn,” said Mekhla Anand, Partner, Cyril Amarchand Mangaldas.
A few amendments were also proposed in the Customs Act to curb unfair practices used to avail of undue concessions and export incentives.