Complete customs overhaul will be next major reform push: FM Nirmala Sitharaman

Finance Minister Nirmala Sitharaman

Finance Minister Nirmala Sitharaman on Saturday said that a complete overhaul of the customs system will be her next major reform priority as part of wider efforts to streamline the economy.

Speaking at the HT Leadership Summit, she said the customs framework needs significant simplification and greater clarity. “We need to make them more transparent,” she said, stressing the need to ease compliance for businesses.

“There are quite a few things to do but what’s on the card — and it’s not a secret that I'm letting out before the budget — is the complete overhaul of the customs area. We need to have customs a lot more simplified for people to feel that it is not too tiresome, cumbersome for them to comply with the expectations and the rules, to make it more transparent,” she said.

Sitharaman added that India broadly aligns its customs standards with the World Customs Organisation. “And we are normally in some sort of alignment with the World Customs Organisation. So every standard that they peg for us and for the world, we normally comply and keep to that benchmark,” she said.

The minister noted that customs duties have already been reduced in the last two years. “We have brought down customs duties over the last two years, steadily. But in those few items where we are still considered to be over the optimal rate, we will have to bring them down as well. So customs is my next big cleaning up assignment,” she said.

Drawing a comparison with earlier tax reforms, Sitharaman recalled how the income tax system once struggled with administrative complexities even when rates themselves were not the core issue. She said this had fuelled the term “tax terrorism,” something she had actively worked to eliminate through measures such as faceless assessments.

“If I can just go back to the income tax act for a minute. The commentary used to be that income tax rates are not the problem. Yes, we want lower and lower and lower rates, but it is the tax administration which causes the problem. It's the tax administration which becomes painful, sometimes agonising and therefore the not so nice coinage resulted in tax terrorism,” she said.

However, she cautioned that modernising customs comes with a dual challenge: ensuring smoother processes while preventing illegal or contraband goods from slipping through. She questioned whether the system could rely more on comprehensive scanning and minimise direct interaction between customs officials and cargo to reduce discretion and build trust.

Sitharaman reiterated that the remaining items with higher-than-optimal customs duties will also be reviewed as part of the reform process.