The tariff reduction on major smuggling-prone items has encouraged their legal import and increased collection of sales tax and income tax from these commodities. According to a CBR report on smuggling, the overall impact of tariff reduction on 19 items has been favourable.
The increased growth in imports has also helped in enhanced collection of sales tax and income tax from these items. Resultantly, an overall gain of Rs 201 million has been realised during 2004-05 from these commodities.
The items are coconuts, brazil nuts and other nuts, tea, pepper, etc, cloves, nutmeg, mace and cardamoms, photographic films and similar items, photographic plates, chemical preps for photographic uses, new pneumatic tyres of rubber, silk yarn, yarn spun from silk waste, silk yarn and yarn spun from silk waste, etc, blankets and travelling rugs, padlocks and locks, electrical ignition equipment, etc, transmission apparatus, and different types of parts.
To discourage smuggling, the rates of customs duty were reduced from 10 percent, 20 percent, and 25 percent to 5 percent on major smuggling-prone items. The idea was to make items imported through legal channels become competitive vis-à-vis the cost of smuggling.
This policy has been generally rewarding, as the imports of smuggling-prone items have grown by 41 percent in 2004-05 as compared to 2003-04 due to the substantial reduction in tariff rates, the revenue on account of customs duty had declined by Rs 798 million.
The major hit in terms of loss of revenue was on account of import of tea. While the import of tea increased by 16 percent during fiscal 2004-05 as compared to 2003-04, the collection of customs duty declined by Rs 807 million, the report added.