INTER-MINISTERIAL GROUP FOR REMOVING DUTY ON INTERMEDIATE GOODS

2-tier customs regime on cards

Chandra Shekhar & Santosh Tiwary

New Delhi, Jan 3: The government is contemplating a blueprint for a two-tier customs tariff structure with the ultimate objective of transforming it into a uniform customs duty regime over the years. As part of the two-tier structure, one rate would be for consumer goods, while the other for producer goods. The scheme also proposes to do away with the concept of intermediate goods.

According to sources, the new tariff structure is likely to form part of the customs duty restructuring promised by finance minister Yashwant Sinha in his last Budget, and the contours of which are expected to be unveiled in the forthcoming Budget. Mr Sinha had promised to bring down the peak customs duty to 20 per cent by 2004-05.

The inter-ministerial group set up by the finance ministry last July on customs tariff structure pointed out that the three-tier structure of customs duty reform, which includes intermediary goods, would be difficult to implement as the division of items as raw materials, intermediate and finished goods was blurred, sources said, adding according to the panel, at the broadest level, the imported goods could be divided in two categories only - producer goods and consumer goods.

When contacted, a member of the inter-ministerial group Arvind Virmani told The Financial Express that both capital and intermediary goods were used in production of other goods and therefore called producer goods. The tariff rates on both were in general equally important in determining the effective protection of user industries, he added. Consumer goods by definition had to be finished items in the sense that they were ready for use without undergoing any further production process, Dr Virmani pointed out.

The panel also said it was possible in principle to have a two-tier structure of tariff rates with one rate for consumer goods and another for producer goods. The division of all goods into these categories might, however, be quite difficult in practice, the panel pointed out. The group further stressed that as a practical matter, it was only possible to select a few important consumer goods for the purpose of having a distinct tariff.

Sources also said in the ultimate run, the panel recommended a uniform rate of customs duty for all imports. The uniform rate ensures that the nominal protection for all imports is the same thus eliminating all classification problems and disputes, resulting in substantial saving in administrative and legal costs. The group pointed out that such a duty regime made it much easier to administer the duty free import regime for exporters. With a single, uniform nominal duty, the effective protection was also identically equal to this rate, which in turn would increase the efficiency and competitiveness of the entire economy, it claimed.

It further observed that one possible objective of the government could be to target a uniform rate of import duty on all imports by ’04-05. “This would require raising all tariff rates currently below 20 per cent to 20 per cent by 04-05 while at the same time bringing down the peak rate to 20 per cent already announced,” it said. u, adding there could also be a few products, which should be given somewhat longer adjustment period of say five years instead of the present three years.