Under the Inverted Duty Structure, the manufactured goods which are imported are charged less, whereas the raw material used for the manufacture of this product is used to impose more taxes on imports.
For example, if India imports rubber made tires from any other country, then less import duty will be levied on it, whereas if the rubber used to manufacture this tire is imported then it will be charged more.
Positive impact on the manufacturing industry of inverse tax structure:
- This increases the competitiveness of local industrialists in the manufacturing sector and leads to the creation of more cheap and quality products. The reason for this is that manufactured imported goods are cheaper due to inverse tax structure.
- Since this makes the manufactured commodities imported from abroad cheaper, so the citizens of the country get more options for buying goods in the market. The reason for this is that domestic manufacturers also produce in the competition of imported products.
Influencing tax structure: Negative impact on industries
- Its adverse effect is on the production of manufacturing industry, thereby contributing to the contribution of the manufacturing industry in the country's GDP.
- Since the manufacturing sector provides employment to more work forces, therefore, the weakening of the manufacturing sector leads to an increase in unemployment.
- The country's manufacturing industries are being proved unable to face the challenge of manufactured products imported from abroad.
- Above all, it has had a bad effect on Make in India and Start up India because manufactured products imported from abroad are quite cheap.
Central Government's steps in dealing with the inverse tax ratio:
- In 2018-19, the government has increased the duty on the manufactured products imported from abroad by the government, which will be benefited by the domestic manufacturing industry.
- With the introduction of GST, the benefits received from manufactured products imported from abroad have been eliminated.
- Most importantly, the government is encouraging the manufacturing industry through make-in-India, monetary policy and start-up India.
Conclusion:
It can be concluded that the inverse tax structure affects the domestic manufacturing industry both positively and negatively, but its negative impact is high. In 2018, the government has made some available to deal with it.
