Budget 2025: GTRI Urges Simplification Of Customs Duty Structure In Upcoming Budget

The government should simplify the customs duty structure by reducing slabs from over 40 to 5 and ensure that raw materials are taxed lower than finished goods in the forthcoming Budget to cut import bills, boost manufacturing and exports, think tank GTRI said on Monday. It asked for an inter-ministerial review of tariff policies to refine India's tariff framework, avoid international scrutiny, and align tariffs with national goals.

Suggesting lowering India's average tariff to about 10%, the Global Trade Research Initiative said this can be achieved without major revenue loss.

Currently, 85% of tariff revenue comes from just 10% of tariff lines (or product categories), while 60% of tariff lines contribute less than 3% to the revenue.

It added that India's customs duties, once a significant contributor to government revenue, now account for just 6.4% of the gross tax revenue, compared to corporate tax (26.8%), income tax (29.7%), and GST (27.8%).

Given the declining share of customs duties, they are no longer a key revenue pillar, and it is time to re-evaluate tariffs as a strategic tool to support domestic manufacturing and global trade, the GTRI said.

"Simplifying the tariff structure by reducing slabs from over 40 to 5, capping maximum tariffs at 50%, and ensuring raw materials are taxed lower than finished goods would foster economic growth, reduce import reliance, and promote exports," said the report, prepared by the think tank's founder, Ajay Srivastava and trade expert Satish Reddy.

The report also suggested ending IGST, cess and Basic Customs duty exemptions under the MOOWR (Manufacture and Other Operations in Warehouse) scheme to support local capital goods manufacturers and Make in India.

The current scheme allows duty-free import of machinery even when the goods made from it are sold domestically.

"This creates an unfair disadvantage for local capital goods manufacturers, who must pay GST on machinery sold in India. Additionally, firms outside the MOOWR scheme pay full import duties and IGST when importing machinery for domestic sales," it said.

Further, the report recommended that the regulatory framework of Customs Cargo Service Providers needs reforms to reduce operational costs and improve trade logistics.

The government should bear customs officers' costs for the sovereign duties performed by them instead of shifting the financial burden to CCSPs in the name of cost recovery, to lower trade expenses, it said adding the outdated customs notifications should be rescinded, and new self-contained ones must be issued with clear duty structures.

"Providing a single, comprehensive duty sheet will make customs processes more transparent and business-friendly," it said.

It added that firms often require expert assistance to interpret the maze of hundreds of overlapping notifications issued over the years.

Notifications are not self-contained and frequently amend parts of older notifications, some of which date back more than two decades, the report said.

Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget on Feb. 1.