The government is considering doing away with inverted duty structure, under which finished goods are taxed at lower rates than raw material, for certain items in chemicals-related sectors, with a view to boosting manufacturing, sources said.
The Commerce and Industry Ministry in its pre-budget recommendations has asked the Finance Ministry to remove this tax anomaly as it is impacting domestic manufacturers adversely.
"The Commerce and Industry Ministry has sought to resolve the issue of inverted duty structure on chemicals-related sectors. To boost the manufacturing sector in the country, there is an urgent need to do away with this tax anomaly," sources said.
Inverted duty structure impacts the domestic industry adversely as a manufacturer has to pay a higher price for raw material in terms of duty, while the finished product lands at lower duty and costs low, an official said.
Companies manufacturing tyres, electrical equipment and medical instruments are suffering the most due to this.
An industry expert said that imported raw material users in a range of manufacturing industry segments are in a spot due to inverted customs duty structure that makes them uncompetitive against cheaper finished product imports and discourages domestic value addition.
Other manufacturing segments which are suffering due to this include pumps for liquids, electronic hardware, aluminium and articles and technical textiles.
A survey by industry body Ficci has said that higher import duty on raw materials results in an inverted duty structure that makes certain Indian manufactured goods (those dependent on imported raw materials) uncompetitive in both domestic and export markets.
Citing the example of tyre industry, Ficci has said that inverted duty structure in this sector exists with respect to natural rubber which is the principal raw material for tyre manufacturing. Basic customs duty on tyres is 10 per cent as compared to 20 per cent or Rs 20/kg (which ever is lower) on natural rubber.
"Domestic manufacturers should be provided a level playing field vis-a-vis imports under free trade agreements and various duty concession schemes," the expert said.
Finance Minister P Chidambaram is scheduled to present the Budget for 2013-14 on February 28.