As import taxes cease to be a major revenue source for the government, the Budget for FY26 should be used to strategically adjust the rates to boost domestic manufacturing and bring average tariffs down, trade policy think tank GTRI said on Monday. Customs duties account for just 6.4% of the gross tax revenue, compared to corporate tax (26.8%), income tax (29.7%), and GST (27.8%).
The Global Trade Research Initiative (GTRI) suggests lowering India’s average tariff to around 10% from 17.1% now, which can be achieved without any major revenue loss and will also help avoid international scrutiny. India’s tariffs have always drawn strong reactions from developed countries, including the US.
Currently, 85% of the tariff revenue comes from just 10% of tariff lines, while 60% of tariff lines contribute less than 3% of revenue. Simplifying the tariff structure by reducing slabs from over 40 to five, capping maximum tariffs at 50%, and ensuring raw materials are taxed lower than finished goods would foster economic growth, reduce import reliance, and promote exports, GTRI said.
The review of tariffs should involve all ministries and not just the department of revenue. An inter-ministerial review of tariff policies would help refine India’s tariff framework and align tariffs with national goals.
The report also suggested ending IGST, cess and basic customs duty exemptions under the Manufacturing and Other Operations in Warehouse Regulations (MOOWR) to support local capital goods manufacturers.The current scheme allows duty-free import of machinery even when the goods made from it are sold domestically.
“This creates an unfair disadvantage for local capital goods manufacturers, who must pay GST on machinery sold in India. Additionally, firms outside MOOWR pay full import duties and IGST when importing machinery for domestic sales,” it said.
It also said the regulatory framework of customs cargo service providers needs reforms to reduce operational costs and improve trade logistics.
The government should bear customs officers’ costs for the sovereign duties performed by them instead of shifting the financial burden to CCSPs in the name of cost recovery, to lower trade expenses, it said, adding the outdated customs notifications should be rescinded, and new self-contained ones must be issued with clear duty “Providing a single, comprehensive duty sheet will make customs processes more transparent and business-friendly,” it said. It added that firms often require expert assistance to interpret the maze of hundreds of overlapping notifications issued over the years.
Notifications are not self-contained and frequently amend parts of older notifications, some of which date back more than two decades, GTRI said.