Customs at a crossroads: The next frontier of India’s tax reform agenda

In recent years, India has undertaken a series of deep-rooted tax and regulatory reforms aimed at improving ease of doing business and enhancing institutional credibility. As part of the reforms, India introduced a revamped income-tax code through the Income-tax Act, 2025, which simplifies the language of the law and restructures the provisions by removing inapplicable sections. In parallel, the GST framework has undergone a steady institutional overhaul, including recent GST rate rationalisation and rationalisation of the dispute mechanism.

On the trade side, India has entered into free trade agreements (FTA) with several countries, which would require that its customs law is tuned to the requirements of the FTAs. Against this backdrop, the government has signalled towards a comprehensive customs reform. With policy emphasis on digital integration, customs duty rationalisation, and procedural certainty, the focus has now moved decisively towards the road ahead, reimagining customs law not as a standalone border-control statute, but as an integral part of India’s unified tax and trade ecosystem.

Areas for reforms: Harmonisation of tariffs

One of the most significant challenges in India’s current customs framework is the multiplicity of proceedings that arise from export and import transactions. These proceedings often overlap across valuation, classification, and compliance, creating a complex web of litigation and administrative burden for businesses. A major contributor to this complexity is the existence of approximately eight tariff slabs, which makes the classification of goods cumbersome and prone to disputes. This fragmented structure not only increases compliance costs but also slows down trade processes.

As India continues to enter into FTAs with multiple jurisdictions, the need for a streamlined tariff structure becomes even more pressing. A rationalised tariff system with fewer slabs would align better with sectoral priorities, reduce interpretational ambiguities, and promote domestic manufacturing competitiveness. Simplification of tariff schedules would also facilitate smoother integration with FTA commitments, ensuring that preferential duty benefits are applied consistently and without unnecessary litigation.

Moreover, a simpler and more consolidated tariff structure covering the bulk of traded goods would encourage trade diversification, making it easier for businesses to plan pricing strategies and supply chains. This reform would not only enhance predictability and transparency in customs administration but also strengthen India’s position as a reliable trade partner in the global market.

Redesigning customs administration

The most critical pillar of future reform lies in the redesign of customs administration. Despite multiple procedural upgrades, customs processes remain heavily officer-centric, dependent on executive instructions, and marked by physical intervention. This contrasts sharply with the GST or the Income-tax regime, which is built on self-assessment, system-driven risk selection, and audit.

Going forward, customs reform should focus on prioritising statutory codification of core administrative principles, including valuation review, audit selection, assessment timelines, and procedural safeguards. Embedding these principles directly into the Customs Law would reduce reliance on circulars and standing orders, curb discretionary interpretation, and provide legal certainty to trade. This would also aid in reducing the turnaround time at ports, allowing faster movements of goods and reducing costs for businesses. The shift from transaction-time enforcement to post-clearance audit and risk management should form the backbone of a more facilitative and predictable customs regime.

Digital integration as the cornerstone of future customs compliance

While platforms such as ICEGATE, ICES, and the Risk Management System have improved efficiency, they continue to operate in silos, leading to data fragmentation and manual interventions. The proposed Customs Integrated System (CIS) represents a structural shift towards a unified digital architecture, integrating front-end filing, backend processing, and risk management.

The upcoming reform should provide legislative backing for CIS, enabling API-based filings, faceless processing, and deeper integration with GST, DGFT, and foreign exchange reporting systems. If implemented effectively, CIS could significantly reduce human interface, improve risk targeting, and shift enforcement towards post-clearance audit. However, statutory recognition of digital workflows, electronic evidence, and system-based decisions will be essential to ensure legal certainty and a smooth transition. 

Global practice and domestic audit

India’s reform trajectory is also shaped by global experience. Jurisdictions such as the EU, the US, Australia, and Japan treat customs primarily as a trade facilitation function, supported by risk-based controls, binding advance rulings, trusted trader programmes, and post-clearance audits. Their customs systems operate in close coordination with VAT and direct tax frameworks, ensuring consistency in valuation and classification.

Recently, the Comptroller and Auditor General’s Compliance Audit on Customs has reinforced the urgency of reform. Audit findings relating to incorrect assessments, weak internal controls, and misuse of incentive schemes highlight systemic vulnerabilities. These observations strengthen the case for clearer statutory standards, automated controls, and risk-based compliance mechanisms embedded directly in law rather than dependent on administrative instructions.

The Union Budget 2026 could be a turning point for customs policy, possibly revealing a forward-thinking plan that balances calibrated tariff rationalisation with quick processing of imports. Based on current patterns, one may expect that the reform agenda may continue in customs. If supported by comprehensive changes to the Customs Act, the government’s reform agenda can transform customs into a facilitative, technology-driven institution that balances revenue protection with trade efficiency. This would aid trade growth that India is envisaging in the coming years. Ultimately, the success of customs reforms will lie not merely in new systems or duty structures, but in redefining customs as a partner in growth, aligned with India’s ambition to be a resilient and globally competitive trading nation.

(Butani is Managing Partner at BMR Legal Advocates; Shankey Agrawal is a Partner at BMR Legal Advocates; and Harsh Shukla is a Counsel at BMR Legal Advocates. With inputs from Nitin Dhatarwal, Associate at BMR Legal Advocates. Views are personal.)