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Union Budget 2025-26 expectations arise for possible simplification of Customs duty rates
With the Union Budget 2025-26 approaching, expectations arise for a review and possible simplification of Customs duty rates. The aim is to reduce tax rate multiplicity, fix duty inversions, resolve classification disputes, enhance domestic manufacturing support, and re-examine existing exemptions to better align with national priorities.
With the Union Budget 2025-26 less than a month away, the air is rife with speculation about what it might or may not contain. However, one of the outcomes is near certain viz. a review of the Customs duty rate structure for an announcement to this effect was made in the last Budget.
Tax experts acknowledge that one of the cornerstones of a good tax structure is to have very few rates. Multiplicity of rates not only generates a perception of complexity but also results in more disputes owing to the arbitrage opportunities it creates. Post the 1991 reforms, for long years, our Customs tariffs for industrial products comprised four major rates viz. 2.5%, 5%, 7.5% and 10% (apart from full exemptions). Starting with the lowest rate of 2.5%, each of the four rates was applicable to a distinct stage in the value chain starting with basic feedstocks, ores and minerals to raw materials that had undergone some degree of processing to intermediates, capital goods or sub-assemblies and the highest rate of 10% to final consumer goods. By implicitly escalating the level of customs tariff according as the degree of value addition that a product had undergone, this structure generated a positive bias in favour of domestic manufacturing or value addition over imports.
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