Budget FY26: Potential Customs Duty Cuts on Raw Materials to Boost Manufacturing
Customs Duty Reduction Expected
The government may reduce customs duty on raw materials used in manufacturing medical equipment, electronic goods, and footwear in the upcoming Budget, according to tax experts. This move is aimed at boosting local manufacturing.
Focus on Rate Rationalization
Deloitte India Partner, Harpreet Singh, stated that key demands from the Customs side for the 2025-26 Budget, scheduled for tabling in Parliament on February 1, include rate rationalization, simplification of the regime, and improved litigation and dispute management. Singh anticipates potential duty cuts on raw materials in sectors like electronics, home appliances, healthcare products, and pharmaceuticals, aligning with the government's manufacturing push.
Sectors Likely to See Rationalization
The sectors that could see rationalization include healthcare, medical equipment manufacturing, white goods, electronics, footwear, and toys. The 2024-25 Budget had announced a comprehensive review of the Customs Duty rate structure for simplification, removal of duty inversion, and reduction of disputes.
Simplified Duty Structure
To reduce classification disputes, the Budget had announced a review of the customs duty rates. Currently, there are over a dozen customs duty rates, and the government is considering reducing the number of rate slabs to 4 or 5. Anurag Sehgal, Managing Director at Price Waterhouse & Co. LLP, suggests that goods may be categorized as value-added, primary, or raw material/intermediary, with corresponding slab rates.
Call for Simplification and Amnesty Scheme
Sivakumar Ramjee, Executive Director at Nangia Andersen LLP, emphasized the need for simplifying the customs duty structure to minimize rate multiplicity, correct duty inversions, and reduce classification disputes, supporting sustainable manufacturing practices. He believes a streamlined rate structure would support domestic manufacturing and align with the ‘Make in India’ initiative. Ramjee also anticipates the introduction of an amnesty scheme to resolve long-standing customs disputes.
Manoj Mishra, Partner at Grant Thornton Bharat, mentioned that approximately ₹50,000 crore is locked up in customs disputes, and an amnesty scheme would help facilitate dispute settlement. The government is being urged to implement a one-time dispute settlement scheme in Customs law to resolve these outstanding issues.
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