Finance Minister Signals Comprehensive Customs Reform Ahead of Union Budget

Finance Minister Nirmala Sitharaman has indicated that a major reform of India’s customs framework is on the horizon, calling it her “next big cleaning up assignment” ahead of the Union Budget. She emphasised the need for a simpler and more transparent system that mirrors the efficiencies achieved in income tax administration over the past decade.

The proposed overhaul will include customs duty rate rationalisation and structural changes to reduce complexity. The objective is to create a compliance environment where businesses do not perceive customs as cumbersome or opaque.

Industry Expectations and Key Suggestions

The announcement has raised expectations among industry stakeholders, who have been making several representations to the finance ministry. Suggestions under active consideration include structural reforms to reduce costs, minimise delays and align India’s border procedures with global standards.

Industry groups have highlighted the need for operational efficiency to improve competitiveness in international trade. These reforms are expected to significantly enhance ease of doing business and reduce transaction bottlenecks.

Addressing Inverted Duty Structures

One of the top priorities for manufacturers is correcting inverted duty structures, which currently result in higher duties on raw materials compared to finished goods. This issue is particularly acute in sectors where free trade agreements allow concessional rates on imports of finished products.

Rationalising these duty structures would help domestic manufacturers remain competitive and reduce dependency on imports. Industry representatives have urged the government to address this anomaly as part of the upcoming reforms.

Single-Window System and Compliance

Industry is also pushing for the operationalisation of Section 11(3) of the Customs Act to establish a unified single-window clearance system. A truly integrated platform would streamline documentation and approvals, reducing delays at ports and border checkpoints.

Another area of concern is the rationalisation of limitation periods for customs show-cause notices, which currently vary for normal and extended periods. A uniform timeline, similar to GST provisions under Section 74A, would simplify compliance and reduce litigation.

Strengthening Post-Clearance Audits

The Special Valuation Branch (SVB) mechanism continues to be resource-intensive despite recent efforts to streamline its processes. Industry experts recommend gradually phasing out SVB and transferring its core functions to a strengthened post-clearance audit system.

This approach would eliminate duplication, accelerate finalisation of Bills of Entry and improve efficiency in customs valuation. Such measures would align India’s customs framework with international best practices and enhance trade facilitation.

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Conclusion

The proposed customs reforms represent a significant step toward modernising India’s trade infrastructure and compliance ecosystem. By addressing duty anomalies, implementing a single-window system and reducing procedural complexities, the government aims to make customs processes more transparent and business-friendly.

These changes are expected to boost manufacturing competitiveness and support India’s integration into global supply chains. The upcoming Union Budget will likely provide further clarity on the scope and timeline of these reforms.

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