Custom Duty

  • May 23, 2022
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Custom Duty

Subject: Economy

Section: Fiscal Policy

Context:

To rein-in prices and preserve domestic supplies, the government today imposed stiff export duty on steel, steelmaking raw materials and intermediaries. It also waived import duty on coal.

Details:

  • An export duty of 15 per cent levied on steel, steelmaking raw materials and intermediaries.
  • Import duty cut on all grades of coal imports (coking and metallurgical coal) and
  • pulverized coal
  • Iron ore exports (for all grades and including concentrates) levied a 50 per cent duty.
  • A 45 per cent export duty has been levied on iron ore pellets.

Impact:

  • Increase competitiveness of the manufacturing and export sector and will push value-added exports.
  • Ease rising pricing by curbing domestic exports
  • Ease the logistics pressure as in some cases as the same raw material was being exported and subsequently being imported by downstream users.

Concept:

Customs Duty refers to the tax that is imposed on the transportation of goods across international borders. It is a kind of indirect tax that is levied by the government on the imports and exports of goods.

Put differently, the customs duty is a kind of fee that is collected by the customs authorities for the movement of goods and services to and from that country.

  • The tax that is levied for the import of products is referred to as import duty
  • The tax levied on the goods that are exported to some other country is known as an export duty.

The primary purpose of customs duty is to raise revenue, safeguard the domestic business, jobs, environment and industries etc. from predatory competitors of other countries. Moreover, it helps reduce fraudulent activities and the circulation of black money.

Basic structure:

Customs duty in India falls under the Customs Act 1962 and Customs Tariff Act of 1975. India’s tariff system is based on the Harmonised System of Nomenclature (HSN) of the Customs Co-operation Council.

The basic structure of import and export tariffs in India includes:

  • Basics Customs Duty
  • Additional Duty
  • Special additional duty
  • Education assessment or cess
  • Other state level taxes

The additional duty is applied to all imports except for wine, spirits and alcoholic beverages. Furthermore, the special additional duty is calculated on top of the basic duty and additional duty.

Types of Customs Duty in India

Customs duties are levied on almost all goods that are imported into the country. On the other hand, export duties are levied on a few items as mentioned in the Second Schedule. Customs duties are not levied on life-saving drugs, fertilizers, and food grains. Customs duties are divided into different taxes, such as:

  • Basic Customs Duty-This is levied on imported items that are part of Section 12 of the Customs Act, 1962. The tax rate is levied as per First Schedule to Customs Tariff Act, 1975.
  • Additional Customs Duty-It is levied on goods that are stated under Section 3 of the Customs Tariff Act, 1975. The tax rate is more or less similar to the Central Excise Duty charged on goods produced within India. This tax is subsumed under GST now.
  • Protective Duty-This is levied for the purpose of protecting indigenous businesses and domestic products against overseas imports. The rate is decided by the Tariff Commissioner.
  • Education Cess –This is charged at 2%, with an additional higher education cess 1%, as included in the customs duty.
  • Anti-dumping Duty-This is levied if a particular good is being imported is below fair market price.
  • Safeguard Duty-This is levied if the customs authorities feel that the exports of a particular good can damage the economy of the country.
  • Countervailing Duties– Duties that are imposed in order to counter the negative impact of import subsidies to protect domestic producers are called countervailing duties.
  • Social Welfare Surcharge (SWS)-It is a tax imposed on the value of goods including the BCD-basic custom duty- value. It is generally 10% unless the goods are exempted from this tax. Social Welfare Surcharge was introduced in the Budget 2018 is levied in place of education Cess
  • Integrated Goods & Services Tax (IGST)- IGST is imposed on imported goods to provide a level playing field for domestic manufacturers, who also pay an equivalent tax (Central GST + State GST or IGST) on sale of goods. IGST on imported goods can be set-off against any other GST liability in India. There are five slabs of IGST 0%, 5%, 12%, 18%, 28%.

Value of imported Goods + Basic Customs Duty + Social Welfare Surcharge = Value on which IGST is calculated

  • Compensation Cess-This is an additional tax that is imposed along with GST on both imported items as well as domestically manufactured items on products that are classified as notified (mostly belonging to the luxury and demerit category) E.g. Special Utility Vehicles, Cigarettes, Tobacco, Aerated Water, etc.
  • Customs Handling Fee-The Indian government assesses a 1% customs handling fee on all imports in addition to the applied customs duty.
Custom Duty economy