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Customs duty structure to be recast, input costs may rise
December, 06th 2006

The Customs duty structure may be in for a rejig. This could especially be in sectors suffering from an inverted duty structure. This means they pay a higher duty on the raw materials they buy than on their finished products.

Sectors such as chemicals, electronics, auto components, tyres and electrical equipment, which were already finding it difficult to cope with the faulty import duty structure have been hit harder in the last couple of years due to various bilateral trade agreements signed by India.

The government has been reducing the Customs duty rates as per its resolve to align them to the Asean levels every year. However, there has been more than a proportionate steep reduction of duties in some sectors that were liberalised due to commitments made under bilateral trade agreements signed by India with countries such as Thailand, Singapore and Sri Lanka.

The government has, therefore, been under pressure from the industry to correct the anomaly in the tariff structure. The correction is expected to be carried out on the basis of recommendations made by the Anwarul Hoda committee on inverted duty structure, likely to submit its report shortly.

According to industry sources, the bilateral agreement with Thailand has adversely affected the markets for colour picture tubes, electric fans and transmission assembly. While the import duty on colour picture tubes is 12.5%, the duty on glass parts, which is a key input, is 15%.

Similarly, electric fans attract a duty of 15%, while the import cess on the input iron alloy coil is 20%. The import duty on transmission assembly at 15% is the same as the import duty on its raw materials such as bearing and rubber parts.

Manufacturers of tyres for cars, trucks and buses have also taken a beating due to the various bilaterals signed by India. The import duty on natural rubber has remain unchanged at 20%, while the import duty on tyres is 15% and lower under various agreements. In China and South Korea, Indias main competitors in tyres, the import duty is 12.9% (under the Asia-Pacific trade agreement). Under Sapta, import duty on tyres is 7.5% while from Sri Lanka, tyres can be imported under the India-Sri Lanka FTA.

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