Export-Import Sector Urges Budget to Cut Customs Tariffs to 10 Percent
Chennai: The export-import sector wants the Budget to lower average customs tariffs to around 10 per cent, while extending interest equalization scheme and restoring the interest subvention rate to 5 per cent.
India should reduce average import tariffs to around 10 per cent to boost domestic manufacturing and avoid international scrutiny. This will not cause any major revenue loss, finds GTRI.
Currently, 85 per cent of tariff revenue comes from just 10 per cent of tariff lines, while 60 per cent of tariff lines contribute less than 3 per cent of revenue. Simplifying the tariff structure by reducing slabs from over 40 to 5 and ensuring raw materials are taxed lower than finished goods would foster economic growth, reduce import reliance, and promote exports.
Further, customs duties, once a significant contributor to government revenue, now account for just 6.4 per cent of the gross tax revenue, compared to corporate tax accounting for 26.8 per cent, income tax 29.7 per cent, and GST 27.8 per cent.
“Given the declining share of customs duties, they are no longer a key revenue pillar and it is time to re-evaluate tariffs as a strategic tool to support domestic manufacturing and global trade,” said Ajay Srivastava, founder, GTRI.
Federation of Indian Exporters Organisation finds that higher interest rates in India compared to its competitors like China, Japan, South Korea, Euro Zone, Thailand or Malaysia has made financing for Indian exporters more expensive. FIEO wants the Interest Equalisation Scheme to be extended and the interest subvention rate for MSMEs to be restored to 5 per cent.
The 5 per cent subvention was reduced to 3 per cent when repo rate got reduced to 4.4 per cent. With repo rate moving up by over 2 per cent, it makes a strong case for restoring subvention to the original levels.
The trade also wants the proposed ending of the IGST and GST Compensation Cess exemptions under the MOOWR (Manufacture and Other Operations in Warehouse) scheme to be implemented. The current scheme allows duty-free import of machinery even when the goods made from it are sold domestically. This creates an unfair disadvantage for local capital goods manufacturers, who must pay GST on machinery sold in India.