Budget for FY24 to skip duty exemption withdrawal but some rates may go up

Centre may not roll back customs duty exemptions in the Union budget significantly but may increase duty rates on specific sectors to promote local production

Gireesh Chandra Prasad
Updated31 Dec 2022
Budget for FY24 to skip duty exemption withdrawal but some rates may go up
Budget for FY24 to skip duty exemption withdrawal but some rates may go up(Amlan Paliwal)

The government is unlikely to roll back customs duty exemptions in the Union budget significantly but may increase duty rates on specific sectors to promote local production, a person familiar with the discussions in the government said.

In the current year’s budget, the government announced the removal of duty concessions for nearly 400 items, including capital goods, farm products, medical devices, and textiles, to discourage imports and support domestic production, as seen in the previous two budgets.

“That exercise was undertaken after public consultation and has been completed. No further removal of exemptions is thought of at this juncture,” the person said, declining to be named.

Duty concessions on highly advanced industrial machines will continue.

In addition, the strategy of lowering import duties on selected raw materials to promote local value-addition and support some export industries will continue, the person said.

However, the government is likely to increase import duties in sectors where production-linked incentives are being considered so that the overall regulatory framework promotes domestic manufacturing.

These include sectors such as furniture and certain chemicals, said a second person, who also spoke on condition of anonymity.

Increasing duty on finished products where the government wants local manufacturing to come up has been a key element of the customs policy in the past few years at a time tariffs have become a major policy instrument for many countries to protect local industry.

By raising import duties, the government aims to increase the prices of imported products, making local production more lucrative. It will also encourage foreign investment in domestic production facilities, creating jobs locally.

In addition, the central government is considering increases in customs duties in several sectors to make free trade agreements with India more attractive to global trading partners and give the government a stronger negotiating position for such deals.

India is negotiating free trade agreements with various countries, including the UK and European Union, after implementing a Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates on 1 May and an early harvest deal with Australia on 29 December.

An email sent to the spokesperson for the finance ministry seeking comments for the story on 20 December remained unanswered at the time of publishing.

The customs duty changes in the Union budget should be carefully calibrated considering the recently concluded free trade agreements and those at the discussion stage, said M.S. Mani, partner at Deloitte India.

Experts also expect measures that would improve the ease of doing business and facilitate trade. “The government had in the past offered amnesty schemes in the case of income tax as well as service tax and central excise (Sabka Viswas scheme). It would be desirable to offer a similar scheme for customs duty-related disputes,” said Abhishek Jain, tax partner at KPMG.

Due to an anticipated global demand slowdown, the government’s customs duty revenue is at risk of slowing down in the next fiscal year. Customs duty receipts till October remained around 58% of the 2.13 trillion full-year target.

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