The AD and SAD continue to be applied to imports in lieu of excise (CENVAT) and local state taxes respectively. The AD, which was introduced in 1975 to offset domestic excise taxes, is currently charged at the general rate of 12.5%, raised from 10% at the time of previous Review. CENVAT rates range from zero to 14% and in the case of petroleum products have compound rates of duty (with an ad valorem rate of 16%). Like the tariff, the CENVAT rates are also changed from time to time through notifications issued by the Government. The SAD is applied at a general rate of 4% which applies to almost the whole tariff (around 90%). It was introduced in 2006 to partially compensate for a range of taxes applied by the States, including sales tax, State value added tax and other charges. These charges vary from State to State and from product to product, but since the SAD is charged on imports at a flat rate of 4% it may not always be equivalent to these charges. In 2007 the Government notified the possibility to refund the SAD paid on imports subsequently sold in India and for which the importer had thus paid the relevant state sales and/or value added taxes.22 Imports that are exempt from customs duty, either through an exemption notification or by the tariff and the AD, are exempt from payment of the SAD as well.
In addition, India charges an Education Cess of 2% as well as a Higher Education Cess of 1% on the aggregate of customs duty on all imports. There is also a charge for the National Calamity Fund for goods falling under the Seventh Schedule, which includes tobacco and its products (specific duties or ad valorem duties of between 1% and 45%), petroleum oils and motor vehicles (1%) and a Clean Energy Cess on coal, lignite and peat of Rs 200/metric tonne as of 1 March 2015 (originally introduced at Rs 50/MT in 2010/11, and raised to Rs 100/MT in 2013/14); the charge on these products is exempted from the equivalent of the additional duty payable.
The addition of these duties and charges to the applied tariff raises the actual duty paid by the importer significantly above the effective applied tariff rate. All imports, unless exempt, must pay the effective rate of customs duty, plus the AD, plus any cess applicable, and the Education and Higher Education Cess; the 4% SAD is then calculated as a share of this final value. As a result, the overall average applied tariff including such charges rises from 13% to 28.3%, with the final duty charged for agricultural products (WTO definition) rising from 36.4% to 46.1% and for non-agricultural products from 9.5% to 25.6%. The highest overall averages are found in beverages (alcohol), spirits and tobacco (99.4%), coffee and tea (88%), and transport equipment (58.9%) (Table 3.5). Nevertheless, the authorities note that the final burden of duties borne by imported goods is considerably reduced if imported for further manufacture or provision of services. This is because the credit of these additional duties and charges is available to be set-off against domestic taxes such as Central Excise Duty and Service Tax under the CENVAT Credit Rules. Likewise, a full refund of the SAD can be claimed by an importer once the imported goods are sold in the domestic market on payment of State VAT.
Table 3.15 Summary analysis of India's import charges, 2014-15
a Calculation for averages with extra charges include landing charges, effective customs duty, additional duty, special additional duty, and education cess.
b ISIC Rev.2 classification. Electricity, gas and water are excluded (1 tariff line).
Note: Calculations exclude specific rates and include the ad valorem part of alternate rates.
Source: WTO calculations, based on data provided by the Indian authorities; and Big's Easy Reference Customs Tariff, 2014 (35th edition).
Some of these taxes, such as the AD and SAD, are expected to be subsumed into a single levy once the Goods and Services Tax (GST), which the Government expects to begin implementing in 2016, is adopted by all States.