The Economic Survey highlighted that Customs and Excise duties are Flexi-fiscal policy tools.
While excise duty is levied on goods produced or manufactured within the country, custom duty applies to the goods that are sold in India but were produced in a different country. Excise duty is to be paid by the manufacturer of the goods and not by the consumer. Custom duty is to be paid by the importer of the goods.
While direct taxes have safeguarded the revenue buoyancy, indirect taxes such as customs and excise duties have acted as flexible policy tools during the fiscal response to the pandemic. When the collection of direct and indirect taxes was adversely impacted during the pandemic year FY21, and low global oil prices created some elbow room for raising taxes on petroleum, the government raised the excise duty on petrol and diesel to augment the revenue pool.
Subsequently, when other taxes recovered and inflationary pressures built up in the economy, the government reduced the excise duty in November 2021 and May 2022 to control the pass-through of the rising global oil prices on the consumers. The budget estimate had factored in negative growth of 15 per cent on excise collections for FY23.
In line with the expectation, the excise duty collection has declined by 20.9 per cent from April to November 2022 on a YoY basis. Given the rise in prices of essential imported products during FY23, customs duties were brought down on several items to control the inflation impact on edible oils, pulses, cotton, steel, etc.
However, high imports during the current year have led to a 12.4 per cent YoY growth in the customs collection from April to November 2022, which is higher than the average growth during the corresponding period from FY13 to FY19.
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