New Delhi

With an aim to rationalise custom duty structure, ease compliance and give impetus to domestic manufacturing, the Union Budget 2021-22 has made several indirect tax proposals. Union Finance Minister Nirmala Sitharaman, said, “Custom duty policy has the twin objectives of promoting domestic manufacturing and helping India get on to global value chain and export better. The thrust now has to be on easy access to raw materials and exports of value-added products.”

In this regard, the budget 2021 proposes to review 400 old exemptions in the custom duty structure this year. She announced that extensive consultation will be conducted and from October 1, 2021, a revised custom duty structure free of distortions will be put in place. She also proposed that any new custom duty exemptions henceforth will have validity upto to the 31st March following 2 years of the date of its issue. 

Domestic electronic manufacturing has grown rapidly and is now exporting items like mobiles and chargers. For greater domestic value addition, Budget 2021 has withdrawn a few exemptions on parts of chargers and sub-parts of mobiles. Further, some parts of mobiles will move from “NIL” rate to a moderate 2.5 per cent. Nirmala Sitharaman announced reducing custom duty uniformly to 7.5 per cent on semis, flat, and long products of non-alloy, alloy and stainless steel. The Minister proposed exempting duty on steel scrap for a period upto March 31, 2022. She also revoked ADD and CVD on certain steel products and announced deduction in duty on copper scrap from 5 per cent to 2.5 per cent. 

Mentioning about the need to rationalise duty on raw material inputs to man-made textile, the Finance Minister announced bringing nylon chain on par with polyester and other man-made fibers. In line with this, an uniform deduction of the BCD rates on caprolactam, nylon chips and nylon fiber and yarn to 5 per cent has been proposed in the budget. This is likely to help the textile industry, MSMEs and exports too. Budget 2021 also proposes to calibrate customs duty rate on chemicals to encourage domestic value addition and to remove inversions. 

The Finance Minister said that a phased manufacturing plan for solar cells and solar panels will be notified to build up domestic capacity. Budget 2021 has announced raising duty on solar inverters from 5 per cent to 20 percent and on solar lanterns from 5 per cent to 15 per cent. 

Stating that there is immense potential in manufacturing heavy capital equipment domestically, the Finance Minister said, “The rate structure will be comprehensively reviewed in due course.” She proposed to withdraw exemptions on tunnel boring machine. It will attract a customs duty of 7.5%; and its parts a duty of 2.5% while raising customs duty on certain auto parts to 15% to bring them on par with general rate on auto parts.

The Budget proposes certain changes to benefit MSMEs which include increasing duty on steel screws, plastic builder wares and prawn feed to 15%. It also provides for rationalising exemption on import of duty-free items as an incentive to exporters of garments, leather and handicraft items.  It also provides for withdrawing exemption on imports of certain kind of leathers and raising custom duty on finished synthetic gem stones.