PEAK Customs duty, which stand at 10%, is unlikely to be cut in Budget 2008 following slowdown in the manufacturing sector and negative growth in labour-intensive exports.
Senior officials said while the Centre wanted to reduce duties for the fourth successive year to meet the self-imposed target of achieving Asean levels by 2009, the Prime Minister’s Office (PMO) had asked the finance ministry to look into the industry’s request of a status quo. The industry has said a reduction in peak duties will spell more trouble as it was already grappling with a steadily-appreciating rupee.
It is understood prime minister’s economic advisory council (EAC) has also favoured the continuation of the Customs duty structure to give relief to the domestic industry.
While peak duty stands at 10% today, the target is to bring it down to 4.5-5% by 2010. Duties on a large number of items like polyester products and certain metals have been reduced to 5%. However, if the government decides not to deviate from its planned strategy of bringing average peak down to 5% by 2010, the duty cuts on most products will have to be much sharper in the following year.
Domestic sectors that would get a reprieve if further import duty cuts are not implemented include airconditioners, refrigerators, washing machines, picture tubes, specified plastics and other capital goods that have been witnessing a slowdown. Import duties on all the products are at the present peak duty of 10%.
Lack of buoyancy in indirect tax collections could also act as a deterrent against Customs reduction as it would have an adverse impact on collections. However, a final decision on peak Customs duty will be taken by the Centre after several more rounds of discussions at the highest level.
It would be a difficult decision for a prime minister and finance minister who are acknowledged as reformists globally but have to face elections the following year.