The year started with US imposing high tariffs across countries, settling down into bilateral rates and initiating negotiations for free trade agreements with most countries.
Furthermore, Mexico has also initiated high tariffs on countries where it does not have bilateral agreements. Apart from the tariffs themselves, Indian industry faces heavy uncertainty and it is time India looks at its own economic security in a dynamic world with changing trade equations.
India continues to stride towards the vision of “Make in India for the World” and the government is actively reshaping country’s indirect tax landscape. The momentum generated by the GST 2.0 reforms, anchored in structural reforms, rate rationalisation, and ease of living has already begun to yield tangible outcomes.
Notably, GST revenue collections for November 2023 recorded a remarkable growth rate of 15% year-on-year, reflecting deeper formalisation of the economy, improved compliance, and an expanding consumption base.
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Building on this progress, a comprehensive overhaul of India’s customs framework, also signalled by Finance Minister Nirmala Sitharaman recently, emerges as the next critical reform frontier. This revamp is long overdue and should go beyond piecemeal amendments. The existing customs regime, along with its structural complexities and interpretational challenges, warrants a holistic relook to ensure ease of doing business, policy certainty, and competitive pricing of export supplies. Budget 2026 is expected to bring efficiencies in India’s global trade set up to counter a world marked by supply-chain realignments, protectionist tariff hikes, and export restrictions on strategic inputs. India’s aspiration to emerge as a trusted, resilient, and value-adding partner in global value chains demands a customs regime that is simple, transparent, and aligned with broader economic priorities.
Union Budget 2026 presents a pivotal opportunity to deliver these essential fixes, laying the foundation for a simpler and fairer customs regime that supports export-led manufacturing and long-term competitiveness.
Rate rationalisation to correct anomalies and fuel growth
The GST 2.0 reforms demonstrate how rate rationalisation and tariff simplification can advance larger economic objectives. Customs duty rationalisation is even more consequential, as it directly shapes India’s industrial strategy, trade competitiveness, and participation in global value chains.
In an environment characterised by shifting trade alliances and evolving global trade dynamics, sector-specific tariff rationalisation becomes imperative. Addressing inverted duty structures should be a priority. Equally important is resolution of the long-standing classification disputes.
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The Union Budget 2025–26 marked a significant step toward simplification. The removal of seven tariff slabs reduced the total slabs to eight, including a zero rate. Duties on key items such as medicines, leather, and selected raw materials were lowered, contributing to a lower average customs duty rate. Recent consolidation of 31 exemption notifications into a single unified notification further eased compliance. Budget 2026 should build on this momentum by further pruning of exemptions, reducing rate disparity within a particular sector and reduction of overall slabs.
The need of the hour is to look at sector wise supply chains and rationalise the rate for products depending on where they fall in the supply chain. Accordingly, if as a part of policy process, Government can highlight the products India wants to focus on making in India and rationalise the rates around them, it will enhance competitiveness and provide the necessary push for these products to be part of the global value chains.
Bringing tax certainty through efficient dispute resolution mechanism
An equally critical pillar of custom reforms is addressing the mounting burden of legacy disputes. Prolonged litigations continue to burden taxpayers, tie up capital, and delay revenue realisation. A more effective dispute-resolution framework, supported by alternative mechanisms such as mediation, arbitration, and structured one-time settlement schemes, can help clear long-standing litigation and restore confidence in the system.
Strengthening the Advance Ruling framework is another important expectation. Extending the validity of rulings and simplifying the renewal process will provide businesses and investors with greater predictability and certainty, fostering a more conducive environment for investment.
Ease of doing business through digital transformation
While ease-of-doing-business initiatives are not traditionally central to the Budget exercise, Budget 2026 can provide strategic direction for the next phase of customs digitisation. Crafting a strategic plan to automate trade procedures, with a particular emphasis on the digitalization of customs compliance, would be a game changer. Introduction of electronic revisions for customs bills of entry, along with automatic refund applications, marks a decisive shift toward a trade-friendly and efficient customs administration.
Building on this, adoption of an API-based compliance architecture, modelled on the successful GST framework will enable seamless end-to-end processes, from filing and amending bills of entry to submitting shipping bills, processing refunds, and managing duty payments. This will not only reduce delays but also significantly ease administrative burdens on businesses.
Addressing long pending challenges faced by units operating under MOOWR scheme and SEZ scheme would further strengthen investor confidence and reinforce India’s commitment to stable and predictable trade policies.
Budget 2026 presents a pivotal opportunity to transform India’s customs framework into a simpler, fairer, and more predictable system. By rationalising rates, devising an effective dispute resolution mechanism and embracing digitalisation, the government can meaningfully enhance ease of doing business, boost investor confidence, and support deeper integration into global value chains.
This article is authored by Bipin Sapra, Tax Partner, EY India, and Ekta Gupta, Tax Director, EY India.
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