Defence Ministry May Retain Exemptions On Imports Of Defence Goods

In order to shift the burden of fiscal deficits, the Defence Ministry may restore the customs import duty exemptions on defence goods and services. These exemptions were not part of the union budget for 2016-17.

A Finance Ministry official said that his ministry had agreed to the Defence Ministry’s plea that the 16 percent import duty on defence goods and services be withdrawn as the duty component was being spent out of the latter’s budgetary allocation, and hence the national exchequer. He said in high-value acquisitions, foreign vendors quoted the basic price in the tenders, leaving the customs duty burden on the Defence Ministry. “It was resulting in an annual outgo of Rs 7,000 to Rs 8,000 crore,” he replied.

In 2018, the Defence Ministry had recommended refund of payments in order to fully utilise its annual outlay for more purchases of actual goods and services. However, this was not accepted by the Finance Ministry as 40 percent of the collected revenue had been shared with the states.

“The only option before us is to discontinue the customs duty imposition in this Budget,” said the Finance official. A proposal to bring back the customs duty exemption would be placed before the Cabinet for approval, he added.

In Union Budget for 2016-17, Finance Minister Arun Jaitley had announced the withdrawal of customs duty exemption on direct imports of defence goods to promote local manufacturing under ‘Make In India’ programme.

He also withdrew basic customs duty exemption on military equipment and stores imported by contractors of government-controlled public sector undertakings (PSUs) or sub-contractors of such PSUs for defence purposes.

India’s 60 percent of defence requirements, especially core purchases are met through imports.

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