Countervailing Duty – A Boon for Indian Producers
- What is Custom Duty?
- Types of Custom Duties
- Countervailing Duty (Additional Duty)
- What it is?
- Why it is levied?
- How it benefits the Economy?
What is Custom Duty?
Customs duty is a type of indirect tax levied on all goods imported into the country, as well as some goods exported out of the country. The duty levied on the first is called an import duty, while the second is called an export duty.
The duty levied depends on the value of the goods, its dimensions and weight, along with many other criteria. Although value-based rights are called valorem rights, quantity-based rights are called specific rights. On the other hand, rights to values ??plus other factors are called compound rights.
Custom Duty in India falls under the Customs Act. As per this act, the government levies duties on both import and export of goods along with their procedures. Matters pertaining to this duty fall under the CBIC (Central Board of Indirect Taxes and Customs), a division of the Department of Revenue of the Ministry of Finance.
The CBIC helps in formulating policies w.r.t. the collection and imposition of custom duties. It oversees the tax administration of inland and foreign travel.
Types of Custom Duties
Customs duties generally levied on goods imported into the country. While export duties are levied on goods as specified in the list in the law, no import duties are levied on certain items such as fertilizers, food grains, life-saving medicines, etc. The customs duty can be classified into the following types: Compensatory obligation to compensate for export subsidies: First, there is the countervailing obligation to take countervailing measures against export subsidies granted to their exporters by foreign governments.
Basic Customs Duty: This obligation is fixed based on the price of the item and therefore imposes the value of the item at the specified rate. However, the government has the right to exempt certain goods from this tax.
Countervailing Duty: CVD or additional customs duties are levied on imported goods.
Anti-Dumping Duty:This duty is based on the dumping margin, which is the difference between the export price and the normal price. It is imposed only if the imported goods are lower than the fair market price.
Education Cess: Education cess used to be levied at 2% of the aggregate of customs duties.
Protective Duty: This right was created to protect domestic industry from imports at rates recommended by the Tariff Commissioner.
Safeguard Duty: This right has been created to protect domestic industry from imports at rates recommended by the Tariff Commissioner.
Countervailing Duty (Additional Duty)
What it is?
The countervailing duty is an import duty imposed on imported goods because it neutralizes some of the benefits of the imported goods (from the exporter’s governments).
Why it is levied?
Compensatory obligation to offset export subsidies: First, there is the countervailing obligation to take countervailing measures against export subsidies granted to their exporters by foreign governments.For example, the export subsidies provided by the Chinese government make Chinese products cheap on the Indian market. This is a drawback for the competing Indian products. To overcome this situation, the Indian government can impose a countervailing duty on Chinese imports.
Countervailing duties to neutralize the exemption from excise duty: Secondly, there are the countervailing duties imposed on the imported product to neutralize the exemption from excise duty enjoyed by the imported product. In this case, most imported products in the producing countries are exempt from excise duty (tax on production). This exemption is granted by the governments there to offer exporters a low price (since tax is exempt). On the other hand, their competitors in India as local producers have to pay excise duty in India. In order to balance this situation, the Indian government may impose an additional customs duty (or countervailing duty) on imports.
How it benefits the economy?
Except in all cases, except in the rarest cases, the tariffs are harmful to the country that imposes them, as their costs outweigh their benefits. The tariffs are a boon to domestic producers who are now facing less competition in their home market. Prices are rising due to less competition. Sales from domestic producers should also increase, everything else would be equal. Increased production and prices are causing domestic producers to employ more workers, increasing consumer spending. The rates also increase government revenues that can be used for the benefit of the economy.
However, there are costs associated with the rates. Now that the price of the good has risen with the tariff, consumers are forced to buy less of this good or less of another good. The price increase can be seen as a decrease in consumer income. Because consumers buy less, domestic producers in other industries sell less, which causes the economy to decline.
Overall, the benefit brought about by the increased domestic production in the tariff-protected industry plus the higher government revenues does not offset the losses caused by higher prices for consumers. We haven’t even thought about the possibility that other countries would levy tariffs on our goods in retaliation, which we know would cost us dearly. Even if they don’t, the rate is still expensive for the economy.
Let’s understand with an example, which will simplify understanding:
If country “X” applies rates to products from country “Y”, consumers from country “X” would pay more for products from country “Y”. As a result, goods from country “a” are made more attractive to consumers from country “X”. This increased demand for domestic products is helping industry to expand, create jobs, etc.
However, there are always negative side effects. Businesses in country “X” have declined over time as there is less competition from countries abroad whose products are more expensive for domestic consumers. Less competition means less innovation, higher prices and lower quality goods. When rates are increased, these companies can sometimes lag behind international competitors – after all, they must be protected from international competition. More competition results in more efficiency, more innovation, lower prices and better quality goods. Companies gratefully fight each other to protect their market share. Less competition means the other.
As I said, consumers from the country pay “X” more for products, thanks to the import tax (tariffs). While they will protect domestic industry and jobs to a certain degree and for a short time, they do affect consumers – especially the poorest consumers who pay a greater share of their income for everyday necessities.
Domestic companies may also find that you pay more. For example, Coca-Cola pay more for aluminium thanks to the ten rate that is levied on imports of aluminium. These costs are always passed on to the buyer.
There are better ways to protect domestic industry, such as easing labour laws, cutting taxes, investing in education, removing the burden of health insurance for workers through a universal health care system, etc. In countries like the UK, companies have no an equivalent burden to provide health care to his or her employees. But this is often another debate for a special day.
As every human body has a defence mechanism to protect the internal intact organs from the foreign particles, the same type of mechanism exists in every country to ensure the protection, sustainability and development of the inland industries.
• While making regulations and rules on trade policy, Govt. should allow a perfect competition in between domestic as well as international competitors. To fulfil the need of the consumers, not every domestic and international organization has the ability to gain the sense of faith and reliance of the consumers. Perfect competitions among organization eventually introduce the better final goods at competitive price.
• The durability, performance, and product support are some of the key aspects on which every producers and organizations have to think twice before launching the goods in market. Sometimes global organizations have the plus point on these aspects as compare to the domestic industries. This is because the global organizations focus on easy access and well interlinked planned at every step during the finalization of the goods. Government should provide a bird’s eye view of these aspects to the domestic suppliers which enable them to compete with the better strength of reliance of their consumers.
• It’s a good step to introduce the extra duties levied on imported goods, it will boon the progress, production and performance of the domestic goods. But we need to keep one think before the introduction of the same, there is the presence of varied type of consumers who expect better experience in return of worthy money. It will better to introduce after the transparency at each step of the production.