Budget 2021: Jugglery With Customs Duty And Cess

Cess imposed but customs duty reduced: To what end?

Photographer: Sam Hodgson/Bloomberg
Photographer: Sam Hodgson/Bloomberg

To improve farm infrastructure, Finance Minister Nirmala Sitharaman proposed a cess on 25 products. At the same time, basic customs duty has been reduced on these items so that, as she put it, there’s no additional burden on consumers.

“There is an immediate need to improve agricultural infrastructure so that we produce more, while also conserving and processing agricultural output efficiently. This will ensure enhanced remuneration for our farmers," Sitharaman said. "To earmark resources for this purpose, I propose an Agriculture Infrastructure and Development Cess on a small number of items. However, while applying this cess, we have taken care not to put additional burden on consumers on most items.”

The 25 items on which basic customs duty has been reduced and cess imposed include apples, wines, fermented beverages, silver, gold, spirits like brandy, bourbon whiskey, scotch, etc. For most of these items, prices may not increase and the change has more to do with in whose kitty the money goes to, experts told BloombergQuint.

Revenue collected from basic customs duty goes into the Consolidated Fund of India, which gets divided between the central government and the states. But any revenue collected on account of cess goes to only the central government.

For most of these items, the final price is unlikely to vary, Ritesh Kanodia, indirect tax partner at Dhruva Advisors, said. “It’s about the government being fully entitled to the share of cess and use it for the purposes for which it is being collected.”

Pratik Jain, indirect tax partner at PwC India, agreed.

While a portion of basic customs duty goes to the states, cess revenue lies solely with the central government, to be used for a specific purpose (agricultural infrastructure in this case), Jain pointed out. “So, it seems fair.”

The math of whether the cess rate is proportionate to reduced customs duty in all cases is yet to be done but the objective seems to be that the final price for the consumer shouldn’t increase, he said.

Agriculture infrastructure and development cess, as an additional duty of excise, has also been proposed on petrol and high-speed diesel. Consequently, basic excise duty and special additional excise duty on both these have been reduced so that consumers don’t have to bear any additional burden.