Industry
Budget 2024: Govt plans duty reforms, tax tweaks to boost local manufacturing
Summary
- Govt aims to remove irritants for merchants claiming tax refunds and tweak tariffs to make investments more viable
- Customs duty changes are expected in the Budget for items related to consumer electronics and medical devices
New Delhi: The government may propose easing procedural hurdles, rectifying tax anomalies, and recalibrating customs duties in the upcoming Union Budget to bolster domestic industries, according to sources familiar with the matter.
The finance ministry plans to remove irritants for merchants claiming tax refunds and tweak tariffs to make investments in critical sectors more viable, and correct inverted duty structures in textiles, apparels, and engineering goods, one of the two persons quoted above said.
A periodic review of import duty exemptions is also underway, with only those items that benefit the domestic economy likely to be retained.
Customs duty changes are expected for items related to two key sectors—consumer electronic goods and medical devices—to boost component production in these sectors, the second person quoted above said.
Policymakers aim to broaden and deepen domestic production, reduce import dependence, and encourage value addition in segments predominantly involving assembling imported components.
“For these sectors, the know-how is not under patent protection, and all it may require to attract fresh investments is a little tariff support," said the person who spoke on condition of anonymity. “A price arbitrage of 5% between imports and local production on account of import duty, ocean freight and insurance can be a big incentive for local production."
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The plan is to encourage more value addition in segments where local production is predominantly in the nature of assembling imported components, the person said.
Ease of doing business
Improving ease of doing business and cutting red tape in claiming tax refunds are also high on the government’s priority. Experts said that an amnesty scheme under customs is the need of the hour.
“This would go a long way in resolving legacy litigation and in fostering certainty in doing business. Separately, rate rationalization for certain products is also being looked forward to, specifically where the rate of duty on import of raw material is more than that on import of finished goods," said Abhishek Jain, Indirect Tax Head and Partner at KPMG.
An email sent to the spokesperson for the finance ministry and to Central Board of Indirect Taxes and Customs (CBIC) on Tuesday seeking comments on the story remained unanswered at the time of publishing.
In the Union Budget for FY24, the government had cut down the number of basic customs duty rates on goods, other than for textiles and agriculture, from 21 to 13 to simplify the import duty regime.
The government may also expand the Authorised Economic Operator (AEO) scheme, granting accredited merchants and logistics players privileges at ports, including quicker clearance and deferred duty payments.
The government is exploring free trade agreements (FTAs) with various countries and blocs to boost exports and facilitate trade. These pacts reduce tariffs and some non-tariff barriers, allowing trade partners to get easier market access to one another's markets.
India's FTAs are now pivoting towards markets in the West, including the UK, the EU, the UAE, Eurasia, and Australia. These recent agreements reflect an emphasis on specific goods and services, with promising prospects for sectors such as gems and jewellry, plastics, engineering goods, agro-processed foods, textiles, technology services, and financial services.
According to the latest data from the commerce ministry, India’s merchandise trade deficit widened to a seven-month high in May, driven largely by a surge in imports. Merchandise trade deficit stood at $23.78 billion in May, up from $19.1 billion in April and $22.53 billion a year ago.
Merchandise exports increased to $38.13 billion in May, up from $34.99 billion in April and $34.95 billion in May 2023. Imports, however, saw a sharper rise, reaching $61.91 billion in May, up from $54.09 billion in the previous month and $57.48 billion in May 2023.
For FY24 as a whole, India's merchandise exports stood at $437.06 billion, down from $451.07 billion during the previous fiscal. Goods imports fell to $677.24 billion in FY24 from $715.97 billion recorded during the same period a year ago.
During FY24, the main drivers of merchandise export growth included electronic goods, drugs and pharmaceuticals, engineering goods, iron ore, cotton yarn/fabric, handloom products, and ceramic products and glassware.
