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Bumpy road ahead for uniform import duty

Harish Damodaran
Hema Ramakrishnan

NEW DELHI, Feb. 15

EVEN as the Inter-Ministerial Group on Customs Reforms under Dr Arvind Virmani has recommended a target of 20 per cent uniform import duty on all commodities by the year 2004-05, its actual implementation may not be an entirely hassle-free exercise.

There are indications that the process of moving towards the 20 per cent uniform rate would be kick-started in the 2002-03 Budget through a five per cent reduction in the existing `peak' rate of 35 per cent.

These could be further pruned to 25 and 20 per cent in the subsequent two Budgets.

A detailed analysis of the 5,133 tariff lines under the Customs Schedule (at six-digit level nomenclature) reveals that as many as 3,421 fall under the 35 per cent basic customs duty slab (see Table).

A reduction in the `peak' rate to 30 per cent would not pose many problems, according to Finance Ministry officials.

Similarly, it would not be difficult for commodities in the existing 30 per cent and 25 per cent slabs to be moved downwards to 25 per cent and 20 per cent, respectively.

But if the 20 per cent uniform rate is to be achieved only by 2004-05, there is no need to tinker with these slabs immediately.

Instead, the 30 per cent slab can be brought down in two stages to 25 per cent in 2003-04 and 20 per cent in 2004-05, while the reduction in the 25 per cent slab can wait till the 2004-05 Budget.

The problem, however, would be with respect to raising tariff rates currently ruling below 20 per cent to the uniform level by 2004-05, as suggested by the Virmani panel.

Again, there is perhaps no need to tinker with the existing 10 and 15 per cent duty slabs in the coming Budget itself, as the former can be increased to 15 per cent and 20 per cent in the 2003-04 and 2004-05 Budgets, respectively, while the latter can be raised to 20 per cent in the terminal year.

The real difficulty would arise mainly with raising the duties on the lowest slabs of zero and five per cent.

To achieve the objective of reaching the 20 per cent uniform duty level by 2004-05, the commodities attracting five per cent duty would necessarily have to be moved to the 10 per cent slab in the coming Budget. But this is easier said than done.

There are 108 tariff lines that currently come under the five per cent slab. These include several sensitive items such as seeds and planting material, pulses, mineral ores, low ash coking coal, chemical fertilisers, newsprint, wood pulp, ships and vessels, ferro nickel and paraxylene.

The Government may find it difficult to enhance duties on pulses, which are in short supply in the domestic market.

Similarly, mineral ores, coking coal and ferro nickel are important raw materials for the beleaguered steel industry, while paraxylene is a basic feedstock for the polyester industry. Besides the basic slabs, there are also over 90 items bearing zero duty and 97 tariff lines attracting duties above the `peak' 35 per cent rate.

Of the latter, as many as 77 comprise agricultural and livestock products - including wines and spirits - covering Chapters 1 to 24 of the Schedule.

It is unlikely that these duties, which range up to 210 per cent, will be reduced keeping in view the political ramifications involved.

Over and above this, there are 217 tariff lines that fall under the Information Technology Agreement (ITA), the duties on which are to be slashed to zero per cent by 2005.

There is no question of having a uniform 20 per cent rate in this case, given that the Government has already committed to phasing out duties on these tariff lines.

The ITA covers six product categories - computers, telecom equipment, semiconductors, semi-conductor manufa- cturing equipment, software and scientific instruments.

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