Economy

Government's proposed Border Adjustment Tax on imports, explained

Updated : December 18, 2019 08:59 AM IST

It’s a duty that is proposed to be imposed on imported goods in addition to the customs levy that gets charged at the port of entry.

The concept of a Border Adjustment Tax (BAT) was first publicly announced by Commerce Minister Piyush Goyal at an event in Mumbai on November 30.

The government is considering to impose additional customs duties on imported goods through a Border Adjustment Tax (BAT). The Ministry of Commerce, which deals with domestic industry and export markets, has written at least two letters to Revenue Secretary Ajay Bhushan Pandey in the last one month or so to take forward the proposal, according to sources CNBC-TV18 spoke to.

The concept of a Border Adjustment Tax (BAT) was first publicly announced by Commerce Minister Piyush Goyal at an event in Mumbai on November 30.

What is the proposed Border Adjustment Tax ?

It’s a duty that is proposed to be imposed on imported goods in addition to the customs levy that gets charged at the port of entry.

What is the proposed mechanism of the proposed Border Adjustment tax ?

The Border Adjustment Tax is proposed to be a non-creditable levy on imported goods. The idea is to bring similar goods in the imported and domestic baskets at par. The Indian industry has been complaining to the government about domestic taxes like electricity duty, duties on fuel, clean energy cess, mandi tax, royalties, biodiversity fees that get charged on domestically produced goods as these duties get embedded into the product. But many imported goods do not get loaded with such levies in their respective country of origin and this gives such products price advantage in the Indian market.

The Commerce and Industry ministry has agreed that this demand of the Indian industry is reasonable and is convinced that the domestic uncreditable duties on 'Made In India' goods put them at disadvantage vis-a-vis similar imported products.

What is the status of the Border Adjustment Tax proposal?

The Department of Revenue, which is responsible for India’s tariff regime, has been urged by the Commerce Ministry to consider imposing a Border Adjustment Tax in the form of an additional customs duty. The ministry has proposed to amend the section 3 of the Customs Act to impose Border Adjustment Tax. The ministry wants to identify goods on which this additional customs levy could be imposed and quantify the tariff for each such identified product.

Officials at the Commerce Ministry believe that the upcoming budget on February 1, which will be presented by Finance Minister Nirmala Sitharaman, could be the occasion to announce the tax.

Will a Border Adjustment Tax be WTO compatible?

Countries that are members of Geneva-based global watchdog World Trade Organisation have locked the upper limits of customs levies for product lines that they trade in. Any additional duty that gets imposed by WTO members are scoffed upon and in many instances, extra customs duties led to countries being dragged to international arbitration under WTO.

India’s Commerce Ministry believes that the proposed extra customs duty through the Border Adjustment Tax is compatible to global trade norms. Officials maintain that article II: 2(a) of GATT allows for import charge that is equal to the internal tax of the country with respect to a “Like Product” or an item from which the imported product is made. Legal opinion on the proposed levy has also been taken.

Government's proposed Border Adjustment Tax on imports, explained

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