The Hindu Business Line : Rationalisation of customs and excise duties may cost Rs 9,000 cr

THE rationalisation of customs and excise duties announced by the Finance Ministry today may blow a large hole in the exchequer, with the Centre expected to forego revenues of roughly Rs 9,000 crore during a full financial year.

A top official from the Central Board of Excise and Customs (CBEC) told Business Line that the move to slash the peak rate of customs duty on all non-farm goods alone would entail annual losses of about Rs 3,000 crore.

The reason for this is that a cut in the basic customs duty (BCD) also ends up lowering the base on which the countervailing duty (CVD) - the additional duty equivalent to the Central excise duty levied on a like good manufactured locally - is imposed.

To illustrate, if the CIF (cost, insurance, freight) value of an imported good is Rs 100 and it attracts a BCD of 25 per cent and a 16 per cent CVD, the effective duty incidence of the product comes to 45 per cent. A reduction in the BCD from 25 to 20 per cent brings down the effective duty to 39.2 per cent.

But this is not all. The Finance Ministry has also dispensed with the 4 per cent special additional duty of customs (SAD), which is imposed over and above the BCD and CVD and is intended to provide a level-playing field to local manufacturers, who are subject to sales tax and various other State levies.

Inclusive of 4 per cent SAD, the final effective duty incidence on the imported good would have worked out to 50.8 per cent, whereas the same will now be 39.2 per cent. In other words, there is an import duty reduction of almost 12 per cent, following today's announcement.

For the current fiscal, the revenues from SAD has been budgeted at Rs 3,757 crore, which means the 5 per cent cut in the peak rate of customs and the abolition of SAD together will leave the exchequer poorer by almost Rs 6,800-7,000 crore. The CBEC official said that the revenue losses from other customs duty cuts on coal, nickel, project imports, IT goods, etc - will be in the region of Rs 500 crore, taking the total hit to about Rs 7,500 crore.

In addition, the Centre would stand to lose over Rs 1,000 crore on account of abolishing the Inland Air Travel Tax (IATT) and Foreign Travel Tax (FTT).

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