NEW DELHI: The government is unlikely to lower peak customs this year as lowering the duty would entail serious revenue loss to the government and expose the local industry to greater competition from imports as it recovers from the effects of the global downturn.
Although India brought down peak tariffs from 20% in 2005-06 to 10% in 2007-08, it has not made any cuts since then. As a result, it has already fallen behind its autonomously fixed deadline of bringing down tariffs to the Asean levels of 4%-5% by 2010.
"The UPA government is primarily concerned about generating adequate resources to successfully run its social sector programmes," a government official, who requested not to be named, told ET.
The fiscal deficit - excess of expenditure over non-debt receipts - for the year is pegged at 6.8% for the current year. The government needs to return to path of fiscal consolidation quickly as such high deficit is not desirable in the long run.
At present, there are three basic customs duty rates for industrial goods - 5%, 7.5% and a peak duty of 10%. Apart from this there are additional taxes including additional duty of customs, special countervailing duty and education cess.
Customs collection in 2008-09 was Rs 1,08,000 crore which was one-sixth of total tax revenue of Rs 6,27,949 crore. Because of a fall in imports during 2009-10 due to the economic slowdown, the customs collection target for the year is fixed at Rs 98,000 crore while total tax revenue collection during the fiscal is expected to go up to Rs 6,41,079 crore.
CII, in its budget representation to the finance ministry, pointed out that any reduction in customs duty at this juncture would be counter productive as the surge in import from countries extraordinarily supporting their domestic industry could mar the recovery prospects. FICCI, too, has asked the government to retain peak customs duty at 10% for "sometime more".
Assocham, however, has made a case for lowering of the duty to 7.5% on the ground that the Indian industry was strong enough to deal with it and the country should stick to its decision of gradually lowering duties to ASEAN levels.
The debate over whether peak customs duty should be reduced to 7.5% is expected to rage for the next two months. A final decision on the issue would depend on the combined wisdom of all ministries concerned including finance and commerce and finally the Prime Minister. If the economy recovers strongly, the government could well lower the duty.
Source : The Economic Times