Customs Duty Collections Slip in FY26 as Indirect Tax Pressures Mount
Even as attention remains focused on slowing income tax collections, India’s indirect tax revenues are also showing signs of strain in the current financial year. Data released by the Controller General of Accounts reveals that customs duty collections have declined sharply during the first eight months of FY26, underscoring the combined impact of sluggish trade and policy-driven tariff rationalisation.
According to the CGA, customs collections fell 7.3% year-on-year to ₹1.43 lakh crore in April–November 2025, compared with ₹1.54 lakh crore in the same period last year. The decline highlights a growing challenge for the Centre, as indirect taxes play a critical role in meeting annual revenue targets.
Customs Revenue Weakens Despite Budgeted Growth Assumptions
Customs duties currently account for about 6.1% of the Centre’s gross tax revenue, making them a relatively smaller but still important contributor to the overall tax pool. In the Union Budget for FY26, the government had projected 2.13% growth in customs receipts for the full year.
However, the year-to-date contraction of over 7% suggests that this target may be difficult to achieve unless there is a sharp turnaround in trade activity during the remaining months of the fiscal. Economists say the divergence between budget assumptions and actual collections reflects structural as well as cyclical factors.
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Tariff Rationalisation Emerges as a Key Drag
Tax experts point out that successive rounds of tariff rationalisation over recent budgets have compressed effective duty rates, limiting customs revenue growth even when import volumes remain stable. Lower tariffs on several intermediate and capital goods were aimed at boosting manufacturing competitiveness and easing supply chain costs, but they have also reduced the revenue yield from imports.
CA Neha Beriwala, partner at S K Patodia & Associates LLP, explained the trend, saying, “The shortfall is linked to tariff rationalisation over the last few budgets, which has reduced effective duty rates even when volumes remain steady.” She added that further tightening of compliance is unlikely to offset the impact of lower rates.
Sluggish Trade Environment Adds to Revenue Stress
Beyond policy changes, global and domestic trade conditions have also weighed on customs collections. Slower growth in merchandise imports, softer commodity prices in parts of the year, and cautious demand have collectively dampened the customs base.
Trade analysts note that import growth has been uneven in FY26, with discretionary and non-essential imports under pressure. This has limited the natural expansion of the customs tax base, even as the government seeks to balance trade policy objectives with fiscal needs.
CGST Growth Trails Budget Estimates
The strain on indirect taxes is not limited to customs alone. The CGA data also shows that Central GST (CGST) collections grew just 5.4% in April–November 2025, well below the budgeted growth of 10.9% for the year.
While GST collections remain higher in absolute terms, the slower growth rate raises concerns about underlying consumption momentum and the effectiveness of tax buoyancy assumptions. Together, weak customs performance and subdued CGST growth point to broader challenges in indirect tax mobilisation.
Excise Duty Offers Partial Cushion to Revenues
Amid pressure on customs and GST, excise duties have provided some support to the Centre’s tax revenues. Stable collections from fuel excise, despite calibrated reductions in recent years, have helped prevent a sharper deterioration in the indirect tax position.
However, analysts caution that reliance on excise has limits, especially given the political and inflationary sensitivities around fuel taxation. As a result, the scope for excise-led revenue support remains constrained.
GST 2.0 and Policy Transition Add Near-Term Uncertainty
The ongoing discussions around GST 2.0 and rate rationalisation have also introduced a degree of uncertainty into the indirect tax landscape. While simplification and rationalisation are expected to improve efficiency over the long term, the transition phase could exert short-term pressure on revenue growth.
Fiscal experts argue that the Centre may need to recalibrate its revenue expectations and borrowing plans if indirect tax collections continue to underperform in the second half of FY26.
What Needs to Change for Customs Recovery
Looking ahead, experts believe that sustained growth in customs revenue will depend less on administrative measures and more on a revival in economic activity and trade flows. As Beriwala noted, “Going forward, sustained growth in customs will depend more on a recovery in demand and trade, rather than further compliance tightening.”
Key drivers for improvement include:
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Recovery in global and domestic demand
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Higher import volumes linked to manufacturing and infrastructure activity
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Stability in trade policy and tariff structures
Without these factors aligning, customs collections are likely to remain under pressure.
Fiscal Implications for the Centre
The slowdown in customs and CGST collections adds complexity to the Centre’s fiscal management in FY26. With direct taxes also facing headwinds, maintaining the fiscal deficit target could require tighter expenditure control or higher market borrowings.
For investors, the trend underscores the importance of monitoring tax data as an early signal of economic momentum and fiscal health. While the government retains multiple policy levers, the latest numbers highlight that indirect tax buoyancy can no longer be taken for granted.
A Cautious Outlook for Indirect Taxes
Overall, the 7.3% decline in customs duty collections during April–November 2025 reflects a combination of policy choices and economic realities. As India balances trade competitiveness with revenue needs, the path to stronger indirect tax growth appears tied to a broader recovery in demand rather than incremental policy tweaks.
The coming months will be crucial in determining whether FY26 can still deliver on budgeted assumptions — or whether indirect tax revenues will remain under sustained pressure.
