Budget 2025: Trade think tank GTRI bats for cut in average import tariff to 10%

Finance Minister Nirmala Sitharaman will present the Budget for the next financial year on February 1, 2025.

The Global Trade Research Initiative (GTRI) proposed six reforms for Budget 2025-26 to boost India’s trade and manufacturing. The proposals include reducing the average import tariffs to around 10 percent to increase domestic production and avoid international scrutiny.

While US president-elect Donald Trump's label of India as a "tariff king" may be exaggerated, a strategic review of import duties could benefit the country by supporting low-cost, value-added manufacturing and trade, GTRI said.

This is especially significant since customs duties account for just 6.4 percent of the gross tax revenue, compared to corporate tax at 26.8 percent, income tax at 29.7 percent, and GST at 27.8 percent.

"Given the declining share of customs duties, there's no longer a key revenue pillar and it is time to re-evaluate tariffs as a strategic tool to support domestic manufacturing and global trade," said a note authored by Ajay Srivastava, founder of GTRI, and Satish Reddy, trade facilitation expert and former senior customs official.

Some 85 percent of tariff revenue comes from just 10 percent of tariff lines, while 60 percent of tariff lines contribute less than 3 percent of revenue.

The GTRI also recommended a simplified tariff structure with fewer slabs and lower duties on raw materials in a bid to promote exports and reduce import reliance.

"Simplifying the tariff structure by reducing slabs from over 40 to 5, capping maximum tariffs at 50 percent, and ensuring raw materials are taxed lower than finished goods would foster economic growth, reduce import reliance, and promote exports. An inter-ministerial review of tariff policies would help refine India’s tariff framework, avoid international scrutiny, and align tariffs with national goals," the note said.

Some of the other suggestions by the GTRI ahead of the Budget for 2025-26 are:

• Using GST analytics to alert taxpayers of mismatches before issuing notices can reduce tax disputes and build trust.

• Ending Integrated GST and cess and basic customs duty exemptions under the MOOWR scheme will support local capital goods manufacturers and 'Make in India'.

• The regulatory framework of Customs Cargo Service Providers (CCSPs) needs reforms to reduce operational costs and improve trade logistics.

• Expediting initiatives announced in Budget 2024-2025 like e-commerce export hubs and employment-linked schemes, which will drive jobs and exports.

• Rescinding outdated customs notifications and replacing them with new self-contained ones with clear duty structures. Providing a single, comprehensive duty sheet will make customs processes more transparent and business-friendly.

Finance Minister Nirmala Sitharaman will present the Budget for the next financial year on February 1, 2025.