India has corrected bad optics on high tariffs, travelled towards ASEAN average: CBIC Chairman

CBIC chairman says India's corrected bad optics

India has corrected the bad optics of being termed as a high tariff nation by reducing customs duty in Budget 2025, Central Board of Indirect Taxes and Customs Chairman, Sanjay Kumar Agarwal, told Moneycontrol.

The CBIC chairman noted that the 1 percent reduction in average rates is huge and now rates have travelled to the ASEAN average. On the GST rationalisation, he noted that GoM (Group of Ministers) will take a decision, but the move is likely to be towards simplification. Edited Excerpts:

What was the thinking behind customs duty cuts in Budget  2025 ? 

Out of 15 tax slabs, seven have been eliminated, and those are the slabs which are at the higher rate. So, the slabs at 150 percent, 125 percent and 100 percent have been eliminated and brought down to 70 percent. Similarly, slabs 40 percent, 35 percent, 30 percent and 25 percent, have been eliminated and brought down to 20 percent. However, an equivalent amount of Agriculture Infrastructure and Development Cess (AIDC) has been levied. Whatever differential got created has been plugged by imposing a comparable amount of AIDC or slightly lower than that because we don't want to send any major shock to the industry. The items on which AIDC has been imposed are in a particular schedule, which can be looked at any time. Stakeholder consultations can determine whether it can be reduced. By this exercise, the bad optics that India has very high rates are addressed to a large extent. It has resulted in this average customs rate coming down to 10.66 percent from 11.65 percent.

How much loss would the exchequer bear because of this?

There will be a revenue loss, but not at all places. We have imposed an equivalent amount of AIDC, and in some places, it is lower than that. In addition, we have exempted surcharge where there was already some cess. So, this entire exercise has resulted in a loss of Rs 1,900 crore.

Rs 1,900 crore is a small loss for the optics that you are gaining?

It's a loss. I will not comment on whether small or big. Our total collection last year was Rs 2,35,000 crore.

AIDC is a cess, so it will go only to the Centre. Hasn't it become inequitable for states because earlier, the customs revenue would go to states as well?

You're right in saying that AIDC entirely comes to the centre, whereas customs are shared with the states. But the thing is, when you have to make a beginning, you must make the beginning from somewhere. So, this identification exercise sets the optics right. The very essential exercise has been done. Now, in the next step, after this identification, further steps will be taken for stakeholder consultation. That is the way things are improved.

Globally, there is this tariff war between the US, Mexico, Canada, and China; where does India fit in?

Whatever we do, the world watches. The perception that India has very high tariffs has been corrected. And the second thing about these trade wars is that they are with specific countries. There is no clarity as to what is going to happen in future. As the situation arises, we will address those situations. For the top 30 items of US imports, the duty rate is very low, between zero to 10 percent. Moreover, the maximum import is crude oil, and that has almost a negligible rate of duty.

You said that we have moved closer to ASEAN rates, which are around 8 percent. What timeline can we expect to reach the ASEAN average?

We have travelled towards the ASEAN average. The reduction of this 1 percent is huge. It cannot be lowered to those levels in one go. But if you look closely, this exercise was done by considering only the Most Favoured Nation status. However, we have Free Trade Agreements with many trading blocks from many countries. Under FTA, the rate may already be nil. The reductions will be gradual.

GST growth rate is about 10.9 percent for FY26, nominal growth 10.1 percent. Is the tax buoyancy expected to stay above 1 and is this sustainable?

We are confident we will achieve the target for this year, which sets a growth rate of 10.9 percent.  So, the buoyancy is around 1.12 for GST, because the nominal GDP growth is 9.7 percent. Compliances are improving. Also, the buoyancy earlier used to be much higher. Now it is shrinking, but for some more time, it will remain one plus. After that, it will taper and will become one

Sir, you have taken quite a few initiatives on digitisation of customs processes. What's the next step in this regard?

Most processes are already digital. Refund is not digital, but we are going to launch the online filing of refunds very soon, maybe within a month's time.