Border Adjustment Tax

  • Niti Aayog member VK Saraswat recently favoured imposing a border adjustment tax (BAT) on imports to provide a level-playing field to domestic industries.
  • BAT is a duty that is proposed to be imposed on imported goods in addition to the customs levy that gets charged at the port of entry.
  • The Indian industry has been complaining to the government about domestic taxes like electricity duty, duties on fuel, clean energy cess, mandi tax, royalties, biodiversity fees that get charged on domestically produced goods as these duties get embedded into the product. But many imported goods do not get loaded with such levies in their respective country of origin and this gives such products price advantage in the Indian market.

Will a Border Adjustment Tax be WTO Compatible?

  • Countries that are members of World Trade Organisation have locked the upper limits of customs levies for product lines that they trade in. Any additional duty that gets imposed by WTO members are scoffed upon and in many instances, extra customs duties led to countries being dragged to international arbitration under WTO.
  • India’s Commerce Ministry believes that the proposed extra customs duty through the BAT is compatible with global trade norms as article II: 2(a) of GATT allows for import charge that is equal to the internal tax of the country with respect to a “Like Product” or an item from which the imported product is made.