The idea is to make raw material imports cheaper, import of select finished goods costlier by withdrawal of exemptions that were till now available, and lower the cost of investments into plant and machinery by reducing customs duty on select capital goods.
The customs duty changes will result in a net revenue gain to the government. “If you look at the indirect tax proposals, we have increased customs duty on some products, but have reduced it on raw materials and capital goods. The net (revenue gain) what we estimate in this financial year is ₹25,000 crore," revenue secretary Ajay Bhushan Pandey said at a press briefing after the Union budget was presented in Parliament.
Experts said the reduction in basic customs duty (BCD) on capital goods is mostly on machinery used in production of electronic items such as mobile handsets, data cables, chargers and batteries of mobile phones, liquid crystal display modules of mobile phones and set top boxes. BCD is the amount of tax that is applied on imports that gives comparable locally produced goods a tariff protection.
The items on which BCD has gone up include marble slabs, automobile parts, air conditioners, loud speakers, digital video recorders, closed circuit cameras and optical fibre. Customs duty on gold and other precious metals has been raised from 10% to 12.5%.
The move to give tariff protection to locally produced goods comes at a time when there is a rise in protectionist trends among major global economies leading to trade tensions. India raised tariffs on 28 items exported from the US in June in retaliation against America’s withdrawal of preferential access for Indian products earlier in the month.
Abhishek Jain, tax partner, EY India said the increase in customs duty on various products used by the automotive industry should help foster local manufacturing of these products but may adversely impact the already sluggish auto market. “Higher BCD rate on various goods for electronic industry like indoor and outdoor units of split air conditioner system would incentivise domestic manufacturing of these goods," said Jain.
India wants to increase the share of manufacturing in its economic output and wants to tap into the opportunity created by a slowing Chinese economy amid global trade tensions.