Tax Reforms

NITI Aayog bats for Border Adjustment Tax (BAT)


From UPSC perspective, the following things are important :

Prelims level : BAT, Customs Duty

Mains level : Not Much

A notable NITI Aayog member has favoured imposing a Border Adjustment Tax (BAT) on imports to provide a level-playing field to domestic industries.

Note how BAT is different from the Custom Duties on imports. Refer to our B2B section.

What is the proposed Border Adjustment Tax?

  • 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.
  • It is proposed to be a non-creditable levy on imported goods. The idea is to bring similar goods in the imported and domestic baskets at par.

Why need BAT?

  • Generally, BAT seeks to promote “equal conditions of the competition” for foreign and domestic companies supplying products or services within a taxing jurisdiction.
  • 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 it be WTO compatible?

  • Countries that are members of Geneva-based global watchdog WTO 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.
  • Commerce Ministry believes that the proposed extra customs duty through the Border Adjustment Tax is compatible with global trade norms.
  • Officials maintain that 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. Legal opinion on the proposed levy has also been taken.

Back2Basics: Customs Duty

  • It refers to the tax imposed on the goods when they are transported across international borders.
  • The objective behind levying customs duty is to safeguard each nation’s economy, jobs, environment, residents, etc., by regulating the movement of goods, especially prohibited and restrictive goods, in and out of any country.

Customs duties are charged almost universally on every good which are imported into a country. Some of these are:

  •      Basic Customs Duty (BCD)
  •      Countervailing Duty (CVD)
  •      Protective Duty
  •      Anti-dumping Duty etc.

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3 years ago

Sir , what is the meaning of non- creditable levy as is the proposed border adjustment tax described?

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3 years ago
Reply to  Meenu Pahal

If some raw material importer has obtained some exemption on his imports ( i .e IMPORT SUBSIDY) till now for the goods.
If some product comes under BAT, then he cannot obtain IMPORT SUBSIDY/ DUTY SCRIPS implying it (BAT) is NON CREDITABLE.

I’m not sure, just a guess…


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