Merits and demerits of custom duty:

Custom duty is a tax levied on the import and export of goods. It is an important source of revenue for the government. However, custom duty has both merits and demerits.

Merits:

1. Source of revenue: Custom duty is an important source of revenue for the government. The revenue generated from custom duty can be used for the development of the country.

2. Protection of domestic industries: Custom duty helps in protecting the domestic industries from the competition of foreign industries. It makes the imported goods expensive and gives a competitive edge to the domestic industries.

3. Control of imports: Custom duty is an effective tool for controlling the imports of goods. It helps in regulating the flow of goods in the country.

4. Encourages local production: Custom duty encourages local production by making imported goods expensive. It promotes the growth of domestic industries and reduces dependence on foreign goods.

5. Employment generation: Custom duty helps in generating employment opportunities in the country. It promotes the growth of domestic industries, which in turn creates job opportunities.

Demerits:

1. Increase in prices: Custom duty increases the prices of imported goods, which makes them expensive for the consumers. It can lead to inflation and affect the purchasing power of the consumers.

2. Smuggling: Custom duty can lead to increased smuggling of goods, as people try to avoid paying the duty. This can lead to a loss of revenue for the government and affect the domestic industries.

3. Trade barriers: Custom duty can act as a trade barrier and restrict the free flow of goods. It can lead to trade disputes between countries and affect the international relations.

4. Dependence on domestic industries: Custom duty can lead to dependence on domestic industries, which may not be able to meet the demand for certain goods. This can lead to shortages and affect the availability of goods in the country.

5. Unfair competition: Custom duty can lead to unfair competition between domestic and foreign industries. It can give an advantage to the domestic industries, which may not be able to compete on a level playing field.

In conclusion, custom duty has both merits and demerits. It is an important source of revenue for the government and helps in protecting the domestic industries. However, it can lead to increased prices, smuggling, trade barriers, dependence on domestic industries, and unfair competition. The government needs to strike a balance between the benefits and drawbacks of custom duty.