View | Budget 2023 on indirect taxes — Simplified customs duty structure to reduce compliance burden

However, the focus of this article is on the changes proposed in the indirect tax regime, which consequent to all matters related to GST, being under the purview of the GST Council — means only Customs and the few items currently under Central Excise.

The contribution in terms of revenue from Customs is not significant — for every Rs 100 collected, Customs contribute Rs 4 as per the FY24 Budget. But their role is significant as the custodian of the economic frontiers of the country and to provide the necessary protection to the domestic industry. The emphasis of the Budget on the Customs side, being to increase/impose import duty on the finished products and reduce/exempt Customs duty on intermediates/components so that value addition takes place in the country. An increase thus in effect would mean protection is being extended. All the Customs changes proposed in this Budget should be viewed through this prism.

As the Finance Minister mentioned in her speech, the aim on the Customs side was to usher in a "simplified tax structure with fewer rates helps in reducing compliance burden and improving tax administration". The number of basic Customs duty rates on goods has been reduced from 21 to 13.

There has been a rationalisation of Customs duty structure resulting in changes in the duty structure in several goods. Basic Customs duty (BCD) has been increased from 2 percent to 2.5 percent on styrene and vinyl chloride monomer. Similarly, naphtha sees an increase from 1 percent to 2.5 percent. BCD on vehicles in semi-knocked down (SKD) form, (significantly even on electric vehicles), has been increased from 30 percent to 35  percent. BCD on vehicles in Complete-Built Unit (CBU) have been increased from 60 percent to 70 percent. The four-wheel sector has been doing well and should with this protection do better.

Also read: Budget 2023: Here's what is expensive and what has become cheaper

BCD on bicycles has been increased to 35 percent from 30 percent, as also the BCD on coal, peat, and lignite. BCD on toys, a sector which is near extinction, has been increased from 60 percent to 70 percent. The BCD on silver bar and silver dore have been increased to 10 percent — the overall duty with the inclusion of Agricultural Infrastructure Development Cess (AIDC) now being 15 percen and 14.35 percent, respectively. The logic for the lesser duty on dore is that the alloy needs further working on to extract pure metal.

There has been a “recalibration’ of duty while maintaining the overall incidence of Customs duties on gold, gold dore, platinum. This is interesting since there was a persistent demand for reduction in duties on gold bars/gold dore given the sharp incidence of smuggling as evidenced by the daily seizures. There has been no change, but the composition of the duty structure has been changed. The BCD has been reduced but the AIDC has been increased. In the case of gold from 2.50 percent to 5 percent and in the case of gold dore from 2.50 percent to 4.35 percent. Similarly, is the case of silver and platinum. Thus, while there is no change in the overall duty, the composition has changed. AIDC now will be 5.40 percent from the previous 1.50 percent for platinum, 5 percent from 2.50 percent in the case silver bars and 4.35 percent from 2.50 percent in the case of silver dore.

Also read: State capex expected to shift gears by April, says FM Nirmala Sitharaman

AIDC is a cess collected ostensibly for the development of agriculture infrastructure. It is revenue which is not shared with the states who to this extent will get lesser. As the Fifteenth Finance Commission (FFC XV) has observed the underlying spirit for levying a cess is to serve a specific purpose and provide necessary financial impetus to a particular sector/area of the economy. However, this has not always happened.

There has been a reduction in BCD in a host of intermediate items spanning multiple sectors — chemicals and petrochemicals, electronic goods, electrical appliances, capital goods for import of specific goods and machinery. All this augurs well for Indian manufacturing. The Budget also saw a review of exemptions-a welcome exercise so that exemptions are focused and extended only if necessary. The Budget has also proposed some legislative changes too in the Customs Act and Customs Tariff Act. The significant change proposed being a time limit imposed on Settlement Commission to dispose cases. The overall revenue impact of the tariff changes proposed is estimated to be about Rs 1,000 crore of revenue being foregone and about Rs 3,000 crore likely to be generated because of the tax measures.

On the Central excise side, the national calamity contingent duty (NCCD) on cigarettes have been increased by about 16 percent.

The Budget has sought to lay out a vision for Amrit Kaal. This will substantially depend upon achieving the fiscal deficit target of 4.5 percent of the GDP by 2025-26 from the current estimated 5.9 percent.