Finance ministry sources said that to begin with, the government was likely to reduce the number of customs duty rates from four at present to three in the forthcoming budget with the peak rate at around 30 per cent ad valorem.
They added that the need for a time-bound customs reforms emanated from the fact that the domestic industry should be given a reasonable time to adjust to the reform measures.
Finance minister Yashwant Sinha in his budget speech for the current financial year had indicated that the customs tariffs would be brought down to East Asian levels and the government would like to move progressively within the next three years to reduce the number of rates to the minimum with a peak rate of 20 per cent ad valorem.
The number of effective rates of import duty besides the zero per cent rate (exempted items) at present are: 5 per cent, 15 per cent, 25 per cent and 35 per cent.
Sources said with the reduction in the rates, a simultaneous exercise of accelerating the removal of exemptions was also expected to be taken up by the government to make up for the revenue losses.
They said that the Central Board of Excise and Customs (CBEC) was reviewing the exemptions on a regular basis, adding that over the last few years, a minimum import duty rate of 5 per cent had been imposed on many items which were hitherto exempt from duty. In the current budget also, 10 such categories of items have been added to the 5 per cent duty list.
The Planning Commission advisory group on tax policy and tax administration for the Tenth Plan headed by Parthasarathi Shome in its report has also called for removal of as many customs duty exemptions as possible with the reduction in customs duty rates.
Pointing out that the 35-per cent rate was amongst the highest in the world, the panel has recommended that it should be brought down to 25 per cent in the 2002-03 budget. It has further said that the objective now should be to bring it down to 20 per cent in 2003-04 and 15 per cent in 2004-05.