Tariffs on India: A brief study

A tariff is a protective measure in the form of a tax that a nation levies on an imported good. Countries have levied tariffs on imported goods to protect domestic producers from foreign competition.  The tariffs on India are taxes levied on goods exported by India to different countries. The importing countries impose these tariffs to collect revenues and protect domestic producers from foreign competitors in terms of price.

Historically, tariffs on India’s exporters have involved three types: Bound, Preferential and Most Favoured Nation (MFN) tariffs. Keep reading to understand the tariffs levied on Indian exporters by other countries. We shall also look at what is meant by imposing suspended tariffs from the Indian perspective.

Tariffs on India levied by the EU

The European Union (EU), simply speaking, is a customs union. It has 27 member countries that act as a single territory for customs purposes.

The EU applies a tariff known as the ‘Common Customs Tariff’ (CCT) on goods imported from non-EU countries. Since India is a non-EU country, exports from India to the EU are also subjected to the CCT.

The import tariff is common across all EU countries. Despite this, one can notice certain differences between the rates of duty related to the import types. This depends on where these imports come from and what type of goods they are. The rates are also dependent on the commodities’ economic sensitivity.

The Common Customs Tariff includes the following:

• Nomenclature (or classification of goods)

• Duty rates related to each goods class.

Moreover, the CCT is inclusive of all other community legislations that impact the customs duty payable on a particular import.

Impose suspended tariffs

While analysing tariffs on Indian exports by the EU, one also needs to understand the suspensions. These tariff suspensions are based on the Treaty of the Functioning of the European Union (TFEU), specifically its Article 31.

One can understand these suspensions as an exception to the normal implementation of the normal customs duty rate. They could be either total suspension or partial suspension of the normal duties implemented on imported goods. These imported goods can also be from India.

Indian companies that export goods under the suspension arrangements enjoy the following three benefits:

·  Free circulation.

·  Freedom of movement throughout the European Union (EU).

·  Any operator in any member state can benefit from it once the suspension is imposed.

Imposing suspended tariffs carry consequences for all EU member nations. Therefore, the sector’s administration should be as per the cooperation between the EU member states and the Commission. This cooperation should be close and extensive so that the Commission can check whether all Union interests are being considered or not.

Tariff levied on India by the US

Trade and investment ties are crucial in Indo-US bilateral relations. They depend mainly on trade, investments and tariffs. While the trade relations between the two countries can be termed friendly, there have been some concerns for US exporters and politicians.

Nevertheless, according to some business groups and analysts, there is potential to enhance the Indo-US trade relations. There are certain trade barriers in the form of tariffs between the two nations. The situation worsened during Donald Trump’s administration, and tensions grew over protectionist barriers.

Former US president Trump levied the following tariffs on India:

·  25 % of $761-million-worth steel imported from India.

·  10 % of $382-million-worth aluminium imported from India.

 Collectively these tariffs amounted to roughly 2.3% of exports to the US by India. Moreover, exports of Indian steel products to the US have reduced by 46%, within a year, since the imposition of the above tariffs.

Widened scope of equalisation

Equalisation Levy (EL) is an Indian tax levied on the consideration that a non-resident receives for certain types of services. Specified service means the following:

·  Online advertising

·  Provision of digital space for online advertisement

·  Any other service for online advertising purposes

The Equalisation Levy was introduced in 2016. It was enacted to tax the digital transactions on specific businesses of non-residents. Its application was at a rate of 6% on some “specified services”.

The Finance Act, 2020, amended the Equalisation Levy. This resulted in a new equalisation levy of 2% and a widened scope of equalisation. This expansion in the Equalisation Levy scope included the consideration that e-commerce operators receive. This consideration is from their e-commerce supply or services.

The widened scope of equalisation was seen by experts as a step by India to force the US to drop its retaliatory tariffs.  This is because the inclusion of e-commerce supplies or services affected many US companies. The US-based multinational companies like Apple, Amazon, Facebook, and Google faced the maximum impact.

Conclusion

Countries have levied tariffs on India to protect their domestic producers.  Moreover, these tariffs on India also help them to make more revenues. ‘Common Customs Tariff’ (CCT) is imposed on Indian exporters by the EU. It is common to all the nations of the European Union. Indian companies can also export goods under the suspension arrangements by the EU. Tariffs exist between India and the US. They became worse after Donald Trump became president. The Finance Act, 2020, widened the Equalisation Levy’s (EL) scope. This significantly affected US companies as it included e-commerce supply or services.