What is it?
- Inverted duty structure is a situation where import duty on finished goods is low compared to the import duty on raw materials that are used in the production of such finished goods.
- For example, suppose the tariff on the import of tyres is 10% and the tariff on the imports of natural rubber which is used in the production of tyres is 20%; this is a case of inverted duty structure.
How it affects domestic industry?
- When the import duty on raw materials is high, it will be more difficult to produce the concerned goods domestically at a competitive price. Several industries depend on imported raw materials and components.
- High tax on the raw materials compels them to raise prices. On the other hand, foreign finished goods will be coming at a reduced price because of low tax advantage. In conclusion, manufactured goods by the domestic industry become uncompetitive against imported finished goods.
- The disadvantage of the inverted duty structure increases with the increased use of imported raw materials. An inverted duty structure discourages domestic value addition.
Why in News?
- The Union Finance Ministry said that reducing GST on hand sanitisers and similar products from 18% would lead to an inverted duty structure and put domestic manufacturers at a disadvantage vis-à-vis importers.
- The Ministry added that lower GST rates helped imports by making them cheaper, that this was against the policy on Atmanirbhar Bharat and consumers would also eventually not benefit from lower rates if domestic manufacturing suffered due to an inverted duty structure.
- Note: Under the GST regime, Import of goods and services will be treated as inter-state supplies and IGST will be levied (in addition to Basic Customs Duty).