/Budget 2021: 400 old duty exemptions to get a rejig, duties cut on many items to help MSMEs

Budget 2021: 400 old duty exemptions to get a rejig, duties cut on many items to help MSMEs

Presenting the Budget 2021, Finance Minister Nirmala Sitharaman proposed to review more than 400 old exemptions in customs this year. The government is to put into place a new customs duty structure by Oct-1, 2021, Sitharaman announced today .

Besides rationalising customs duty on Gold and Silver, the FM announced withdrawing exemptions on some parts of mobile phones to boost local manufacturing of smartphones. Also, some parts of mobiles would move from NIL to 2.5% rate and the government would grant exempt duty on steel scrap for a specified period.
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“To provide relief to metal recyclers, mostly MSMEs, I’am exempting duty on steel scrap up to 31st March 2022. I am also revoking Anti-Dumping Duty (ADD), Basic Customs Duty (BCD)on certain steel products. Exemption duty on steel scrap up to March 2022; customs duty on naphtha cut to 2.5 %c. Customs duty on certain auto parts, solar equipment raised,” she said.

Further, while Customs duty on cotton, raw silk has been raised, the Basic Customs Duty rate on nylon chips and nylon fibre has now been reduced. Similarly, duty structure applicable to a whole host of items across sectors has been given a complete overhaul through the Budget 2021.

According to Saloni Roy, Senior Director, Deloitte, the budget has sought to address the genesis of the existing distortions in the customs duty structure by reviewing 400 existing exemptions.

“Total revamp of customs and new customs structure from October 2021 is a surprising element. Exemptions validity being for a limited period can be a concern, as there would be lack of predictability. The message is clearly towards increasing domestic manufacturing,” Roy said.

On the government’s customs duty exemptions on parts of mobile phones such as printed circuit board assembly (PCBA), camera module, connectors, USD cable, wired headset, microphone and receiver etc., she added the move view will encourage the usage of these items manufactured domestically and is expected to bring parity in tax incidence of imports vis-à-vis the domestically manufactured goods.

“This exemption has been withdrawn effective 1 April 2021 with an objective to promote manufacturing and greater value addition by domestic manufacturers. Similarly, to promote domestic procurements for leather products, the exemption has been withdrawn. For auto parts, there has been a proposal to increase rates, towards shifting procurements to domestic suppliers. While there would be many who believe that India’s policies are becoming more inward focussed, however, if implemented well India could achieve a balance and eventually an economic superpower,” Roy added.

The FM also tried to provide succour to MSMEs and other user industries that have been severely hit by a recent sharp rise in iron and steel prices. The FM announced that there will be a reduction in Customs duty uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels. Also, to provide relief to metal re-cyclers, mostly MSMEs, “I am exempting duty on steel scrap for a period up to 31st March, 2022,” said Sitharaman.

The country’s exporting community has hailed the new changes.

The Automotive Component Manufacturers Association of India (ACMA) has lauded the FM’s move to enhance Basic Customs Duty (BCD) on select auto components to 15%. “Increase in basic customs duty on select auto components will encourage local manufacturing of such items. It is also heartening that the budget outlay for the MSME sector has been doubled compared to last year. The auto component industry is dominated by MSME, and this will provide them the necessary succour as the industry recovers,” asserted Deepak Jain, President, ACMA.

Hailing the Sitharaman’s announcement relating to duty structure for the Gem and Jewellery sector, Colin Shaw, Chairman, Gem and Jewellery Export Promotion Council, said, the reduction in duty from 12.5 % to 7.5% will help the Gem and Jewellery exports become globally competitive. “Reduction in import duty of silver and gold would give the much-needed boost to the sector and help it move to the next level. In fact, high duty on precious metal had made our exports uncompetitive leading to large Indian diaspora/NRI, moving to Dubai, Hong Kong or other centres to buy jewellery which was largely impacting the employment as well as business in India,” Shah added.

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