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Custom Duties

Economic Situation
Key Objectives
Small Scale Industry
Science & Technology
External Sector
Capital Market
Expenditure Management
PSU Reform
Revised Estimates
Budget Estimates
Indirect Taxes
Custom Duties
Direct Taxes - A
Direct Taxes - B
Closing Statement

Budget 1998-99
Budget 1997-98
Budget 1996-97


Custom Duties

Mr. Speaker, Sir, I now turn to my proposals relating to customs duties. My proposals here reflect a balance of differing considerations. On the one hand, we are committed to a calibrated integration of our economy with the world economy. This would entail further phasing down of our customs duties to Asian levels. On the other hand, is the need to raise revenue and the fact that in a year of exceptional turbulence and uncertainty in the world economy, our industry should be cushioned against unusual surges of competitive pressure from imports.
Sir, a special customs duty of 2% was imposed in the budget of 1996-97, and a further special customs duty of 3% was imposed on certain items in 1997-98. The special customs duty of 5% is in force till 31.3.1999. I have in the course of another discussion assured this House that the period of validity of this special customs duty will not be extended. I announce the discontinuance of the 5% special customs duty with effect from 28.2.1999.
After careful examination of various possibilities, and close interaction with the apex organisations of Commerce and Industry, I propose to reduce the existing 7 major ad-valorem rates of customs duty to 5 basic rates. The new rates will be:
5% - which will remain unchanged;
15% by substituting the existing 10% rate;
25% by merging the 20% and 25% rates;
35% by merging the 30% and 35% rates;
40% - which will remain unchanged.
The one industry in which a special regime of customs duty will apply is the Information Technology sector. The Prime Minister has repeatedly emphasised the importance of this sector for the country’s development in the new century and millennium. Accordingly, I am proposing significant reduction in duty rates of a number of critical inputs in this sector, such as ICs and micro assemblies, storage devices and CD Roms, telecom equipment and optical fibres.
To garner revenue to meet the country’s irreducible needs, I propose a uniform surcharge of 10% on all commodities, excluding the following categories:
Crude Oil and Petroleum Products;
Items attracting 40% rate of basic duty;
Certain GATT- bound items;
Gold and Silver;
The effect of the surcharge would be to raise the basic rate by 10%. Thus a basic rate of 5% would become 5.5%, 15% would become 16.5% and so on.
Taking into account that special customs duty is being discontinued, and that crude oil and petroleum products are exempt from surcharge, the effective import duty rates on these products will stand reduced. This is consistent with the Government’s established policy of rationalising indirect taxes on these products in an agreed time-frame.
By exempting items attracting 40% rate of basic duty from the surcharge, there is a modest but clear reduction in the peak rate of protective custom duty from 45% to 40%.
Mr. Speaker, Sir, conceptually, I am averse to zero custom duty, since our domestic industry generally merits some minimal protection. I have reviewed the entire list of such commodities and to begin with I am proposing the imposition of 5% rate of duty for some of these commodities. In order to mitigate the impact of the incidence of 5% rate of duty on such items which have previously enjoyed exemption, I propose to exempt this category from the existing 4% special additional duty.
I am rationalising the import duty structure of project imports. Under this rationalisation, power generation, coal mining, refinery, telecom and fertilizer projects will now attract a nominal basic customs duty of only 5%. However, they will be subject to applicable rates of countervailing duty. The net impact of these changes will not be significant in most cases. Mega Power Projects also will be an exception to this
Mr. Speaker, Sir, as a result of the various proposals made in this budget on the indirect taxes, the estimated revenue in 1999-2000 would be Rs.1,17,625 crore, including a component of net additional resource mobilisation of Rs.6,234 crore.
Last year, I had announced the setting up of an Authority for Advance Rulings for Excise and Customs. The necessary legislation has been included in this Finance Bill. Drawn on the lines of the Advance Rulings Authority on the Direct Taxes, the proposed Authority would provide binding rulings on important issues, so that intending investors will have a clear-cut indication of their duty liability in advance. 
The Central Board of Excise & Customs has adopted a "Vision Document" and the "Citizens Charter" which together present a blue print for the future and the service standards that can be expected of the Customs and Excise Department. The compliance of the service standards set out in the Charter is being closely monitored. The Commissioners of Customs and field level officers have been directed to enhance the quality of their service and have also been told that any non-compliance would be viewed adversely.
On the central excise side, the computerisation of assessment and audit operations is being given focussed attention, and before long, electronic filing of returns is proposed to be put into operation.
Copies of the notifications giving effect to proposed changes in customs and excise duties will be laid on the Table of the House in due course.

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