INVERTED DUTY STRUCTURE

Subject : Economics

Context :The rubber goods industry, especially the non-tyre segment, is worried over the irrational duty structure that has put several domestic manufacturing units in a precarious position.

Concept :

• Inverted duty structure (IDS) is a situation where the rate of tax on inputs used is higher than the rate of tax on the finished good.
• Take an imaginary situation of tyre industry, the tax rate on natural rubber (input) purchased is 10% whereas the tax rate on rubber tyre is 5%. Here since the tax rate on input is higher than that on the finished good, there is an inverted tax structure.
• The normal situation is that tax on inputs used is lower than the tax rate of the finished goods. Inverted duty structure is usually prevalent in the case of customs duty (import duty).