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Explained: Import duty changes in Budget 2022, and its significance

Finance Minister Nirmala Sitharaman has introduced a slew of higher custom duties on items of daily use such as umbrellas, headphones, earphones, loudspeakers, smart meters, and imitation jewelry. Who do the duty changes help and what do they signify?

Written by Aashish Aryan , Aanchal Magazine , Edited by Explained Desk | New Delhi |
Updated: February 3, 2022 7:25:45 am
Experts said the hike in import duty for items, such as umbrellas, are in line with the increase in import duty on toys last year.

Signalling a move to protect domestic industries which are not necessarily capital, technology or labour intensive, Finance Minister Nirmala Sitharaman on Tuesday introduced a slew of higher custom duties on items of daily use such as umbrellas, headphones, earphones, loudspeakers, smart meters, and imitation jewelry.

Who do the duty changes help and what do they signify?

Most of these products are imported from China, either as complete units or as knocked down units which are then assembled in factories in India. For example, the customs duty on umbrellas was doubled to 20 per cent, while exemptions provided on import of parts of umbrellas were withdrawn. Similarly, the customs duty on single or multiple loudspeakers, whether or not mounted in their enclosures was hiked to 20 per cent from 15 per cent.

Experts said the hike in import duty for items, such as umbrellas, are in line with the increase in import duty on toys last year. “The hike is being done for industries which manufacture items that do not deploy any major technology. Umbrellas, for instance, are manufactured in small units spread across 10-12 districts with Kerala being the major manufacturing state. The government seems to be offering protection to such industries. It also falls in line with the other Budget announcement of popularising one station-one product to popularise local businesses and supply chains,” a Mumbai-based tax expert said.

One station-one product as a concept aims to promote a local product from each stop of the Indian Railways by making the railway station of that area a promotional and sales hub for the product.

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Which items will see the biggest change in their import duty structure next fiscal?

Apart from umbrellas, the customs duty on headphones and earphones, whether or not combined with a microphone, and sets consisting of a microphone and one or more loudspeakers, was also hiked to 20 per cent from 15 per cent, while those on smart meters was raised to 25 per cent from 15 per cent.

“Exemption is also being rationalised on implements and tools for agri-sector which are manufactured in India,” Sitharaman said while presenting the Union Budget for 2022-23.

Import duty, meanwhile, was reduced for cut and polished diamonds, asafoetida, cocoa beans, methyl alcohol and acetic acid along with proposing to phase out the concessional rates in capital goods and project imports gradually and apply a tariff of 7.5 per cent.

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“Project import duty concessions have also deprived the local producers of a level playing field in areas like coal mining projects, power generation, transmission or distribution projects, railway and metro projects. Our experience suggests that reasonable tariffs are conducive to the growth of domestic industry and ‘Make in India’ without significantly impacting the cost of essential imports,” Sitharaman said in her Budget speech.

Under Project Import Scheme, goods imported by a company are placed under a single tariff in the Customs Tariff Act, 1975 to facilitate faster assessment and clearances of goods.

The duty on products such as methyl alcohol (methanol) and acetic acid has also been brought down to 2.5 per cent and 5 per cent, respectively from the existing 10 per cent.

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“Customs duty on certain critical chemicals namely methanol, acetic acid and heavy feed stocks for petroleum refining are being reduced, while duty is being raised on sodium cyanide for which adequate domestic capacity exists. These changes will help in enhancing domestic value addition,” Sitharaman said.

How have import duty changes been made in recent times?

Last year, customs duty exemptions were given to the steel scrap industry, which has now been extended for another year and are likely to provide relief to micro, small and medium-scale secondary steel producers.

Over the last five years, import duty hikes have been made on several occasions such as almonds, apples, and others. Other items such as cellphone parts and solar panels have seen the most regular hikes, with an aim to protect and nurture the domestic industry growth.

Prior to the large-scale hikes, India’s peak customs duty — the highest of the normal rates — on non-agriculture products had come down steeply from 150 per cent in 1991-92 to 40 per cent in 1997-98 and subsequently, to 20 per cent in 2004-05 and 10 per cent in 2007-08.

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First published on: 02-02-2022 at 04:25:48 pm
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