Merits of Custom Duty:

1. Revenue Generation:
Custom duty serves as a significant source of revenue for the government. It is a form of indirect tax imposed on imported goods, ensuring that the government can generate funds to finance public expenditures and contribute to national development.

2. Protection of Domestic Industries:
Custom duty plays a crucial role in protecting domestic industries from foreign competition. By imposing higher tariffs on imported goods, the government can make locally produced goods more competitive. This measure encourages domestic companies to flourish and contributes to the growth of the national economy.

3. Balance of Trade:
Custom duty helps in maintaining a favorable balance of trade by controlling the inflow of imported goods. Higher tariffs on certain products can discourage their import, reducing the dependence on foreign goods and promoting local production. This can lead to a more balanced trade relationship with other countries and decrease trade deficits.

4. Employment Opportunities:
The imposition of custom duty can stimulate employment opportunities within the country. By protecting domestic industries, there is a higher demand for locally produced goods, leading to increased production levels. This, in turn, creates job opportunities for the workforce, contributing to economic growth and reducing unemployment rates.

Demerits of Custom Duty:

1. Increased Prices for Consumers:
One of the significant drawbacks of custom duty is that it can lead to increased prices for consumers. When imported goods are subjected to higher tariffs, the cost of these goods rises. This can make certain products less affordable for consumers, affecting their purchasing power and potentially leading to a decrease in overall consumption.

2. Smuggling and Black Market:
The imposition of custom duty can also lead to an increase in smuggling activities and the growth of the black market. When tariffs are too high, some individuals may resort to illegal means to import goods without paying the required duties. This can result in revenue loss for the government, as well as a disruption of the legal trade system.

3. Trade Barriers and Protectionism:
Custom duty can sometimes be used as a tool for protectionism, where countries impose high tariffs to shield domestic industries from foreign competition. While this may protect certain industries, it can also hinder international trade and create trade barriers. Such protectionist measures can strain diplomatic relations and lead to trade disputes between nations.

4. Inefficiency and Corruption:
The collection and administration of custom duty can sometimes be inefficient and prone to corruption. Lack of transparency and accountability in the customs department can result in bribery, smuggling, and misappropriation of funds. This not only leads to revenue losses for the government but also undermines the effectiveness of the custom duty system.

In conclusion, custom duty has its merits, such as revenue generation and protection of domestic industries, but it also has demerits, including increased prices for consumers and the potential for smuggling and trade barriers. It is essential for governments to strike a balance, ensuring that custom duties are set at appropriate levels to promote economic growth while avoiding excessive burdens on consumers and encouraging fair trade practices.