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      Quick background

      India is set to graduate out of the UK’s Developing Countries Trading Scheme (DCTS) for certain goods starting 1 January 2026. That means UK importers will lose access to preferential tariffs on those products, at least temporarily.

      The DCTS is designed to support exporters from developing countries by offering lower customs duties on eligible goods. It’s split into three tiers:

      • Comprehensive Preferences (CP)

        For least developed countries - maximum tariff relief.

      • Enhanced Preferences (EP)

        For lower-income and lower-middle-income countries — moderate relief.

      • Standard Preferences (SP)

        For countries like India and Indonesia — limited relief on fewer tariff lines.

      Jeeven Pawar

      Director

      KPMG in the UK

      India currently falls under the SP category, but HMRC has assessed that certain Indian-origin goods are now competitive enough to stand on their own. As a result, preferences for these goods will be suspended from 1 January 2026 to 31 December 2028. This process is known as 'graduation.'

      So what’s the impact?

      If you’re importing any of the graduated goods from India, you’ll be paying full customs duty during this period — unless something changes.

      And here’s where it gets interesting: the UK-India Comprehensive Economic and Trade Agreement (CETA), signed in July 2025, is expected to kick in sometime in 2026. Many of the same goods affected by DCTS graduation are covered under CETA, which should bring tariff relief back.

      But CETA still needs to be ratified and enacted by both countries. That process could take weeks or even months. Which means there’s a real possibility of a gap period where neither DCTS nor CETA applies.

      What should UK retailers be doing now?

      If you’re sourcing from India, here’s how you can get ahead of the curve:

      • Consider accelerating your reports into 2025 to use the DCTS before it expires.
      • Explore alternate sourcing from other DCTS countries that still benefit preferential tariffs — especially if CETA implementation drags into mid-2026.
      • Factor in the cost impact of full MFN duties into your pricing models.
      • Review and update contracts with customers if you plan to pass on any additional costs.

      Final thoughts

      This isn’t just a regulatory update — it’s a supply chain moment. The temporary loss of DCTS benefits could hit margins, but CETA offers a promising path forward. The key is to plan for the transition, stay flexible, and keep your sourcing strategy aligned with the evolving trade landscape.

      If you’d like help modelling the impact or exploring alternative sourcing options, we’re here to support you.

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