The customs duty structure will be reviewed over the next six months to rationalise and simplify it for ease of trade, removal of duty inversion and reduction of disputes, the finance minister said. This was even as rates of several items were either reduced or increased in the Budget, with a view to support domestic manufacturing.
“The focus of the review is also to reduce the customs duty on products that have attained maturity in domestic manufacturing,”partner at Deloitte India Gulzar Didwania said.
Under this policy the budget announced a reduction in duties on mobile phones to 15% to 20%. This will immediately benefit consumers of mobile phones that are being manufactured by companies like Apple in Special Economic Zones (SEZs).
Apple manufactured $14 billion worth of mobile phones in India in 2023-24 of which around $4 billion entered the domestic market. Sales from SEZs to domestic markets are treated as imports. Other mobile manufacturers who are not in SEZs will be put at a disadvantage though for them the duty of printed circuit board assembly has been brought down to 15% from 20%. The SEZs import all components duty-free.
Another major decision of the government is reduction in customs duties on gold and silver to 6% and that on platinum to 6.4 per cent from around 15% at present. The basic custom duty of gold, silver and platinum has been reduced to 5% from 10% while the Agriculture Infrastructure Development Cess has been reduced from 5% to 1%.
“One possible explanation of these duty cuts is to address the large quantities of bullion imported via India-UAE Comprehensive Economic Partnership Agreement (CEPA),” founder of Global Trade Research Initiative Ajay Srivastava said.
One consequence of cutting duties of the precious metals would be reduction in the attractiveness of Dubai as a source. The India-UAE trade agreement allows imports of silver at 8% duty so the arbitrage will disappear. In gold imports of gold get 1% concession on the rates which imports from other countries attract. Now gold from Dubai will come at 5%. The cut also addresses the problem of gold being brought in at 5% after mixing it with 2% platinum. This will also bring back suppliers of gold from other countries back in business.
In FY2024, India imported gold worth $45.54 billion and silver worth $5.44 billion, while exporting jewellery worth $13.23 billion.
The budget also reduced the duties on 25 critical minerals like lithium, copper, cobalt and rare earth elements to zero. Duties on graphite, silicon quartz, and silicon dioxide have been reduced to 2.5%.
“India is a net importer of most critical minerals and zero duty imports may lead to development of processing of these minerals. Currently, 70% of global processing of most critical minerals happens in China,” Srivastava said.
Duties on three more medicines used for cancer treatment have been cut to zero. There has been reduction in import taxes on some medical equipment, capital goods for use in the manufacture of solar cells and panels in the country.
To support Rs 16,000 marine export industry duties on certain broodstock, polychaete worms, shrimp and fish feed to 5% while inputs for manufacture of shrimp and fish feed can be brought into the country without taxes.
The government must vigilantly prevent misuse of this provision as unscrupulous firms have previously imported human-grade mineral and vitamin mixes, causing significant financial losses, Srivastana said.
The duty on Ammonium Nitrate has been increased from 7.5% to 10%. Ammonium nitrate is used for making fertilisers, explosives and nitrous oxide is used as an anaesthetic and analgesic in surgery and dentistry .The duty on methylene diphenyl diisocyanate (MDI) for manufacturing spandex yarn has been reduced from 7.5% to 5% to correct duty inversion. This along with cutin duties on certain leather will help in exports of textile and leather.