The recommendations of the tax reforms committee headed by Dr. Raja Chelliah, which have been accepted in principle by the government, would entail reduction in tariffs so that by the year 1997-98, the ad valorem import duty rates on indutrial inputs would range from 5% to 30%. The duty on non-essential consumer goods would then be no more than 50%.
All goods can be imported freely except for a small Negative List consisting of:
Quantitative restrictions on imports of capital goods and intermediates have been almost completely removed. The import of second hand capital goods is allowed, provided they have a residual life of 5 years. Import of all items, except those included in the Prohibited List, is permissible free of duty for export production under a Duty Exemption scheme. In order to facilitate expeditious approvals of import proposals under this scheme, input-output norms for more than 3,000 items have been announced.
Import of capital goods, either new or second hand, is also permitted at a concessional customs duty rate of 15% under the Export Promotion Capital Goods (EPCG) scheme, subject to the fulfilment of specified export obligations.
The Government has clearly stated its commitment to bringing tariff rates down to international levels in a phased manner. There has been a consistent decline in these rates over the past three years from the peak rate of 300% in June 1991 to a peak rate of 50% at present. Capital goods imports which were earlier subject to tariff rates of around 100 per cent, now attract duties in the range of 20-40 per cent, with the basic import duty on general capital goods at 25 per cent. Import duties on equipment are even lower for projects in specific sectors and nil for export oriented projects.
A duty rate of 20% is levied on equipment for power projects and there is no duty on equipment for fertiliser projects.
The reduction in tariff rates are specifically significant on an import weighted basis. Published tariff rates do not fully reflect the nominal levels of protection, due to numerous exemptions. Collection rates (the ratio of the realised customs revenue to the value of imports of a commodity) provides a more accurate picture.