Finally, the wait is over.
The long-awaited remission scheme bearing an inelegant sounding acronym was approved by the Cabinet Committee on Economic Affairs in March 2020. Though it was to be applicable to all exports from January 1, 2021 - no details had been announced thereafter. The rates and details of the Scheme For Remission of Duties and Taxes on Exported Goods with the acronym RoDTEP, have been formally announced on August 17, 2021. The scheme has the stated objective of ‘refunding currently un-refunded duties/taxes/levies at the central, state and local level, borne on exported products including prior-stage cumulative indirect taxes on goods and services used in the production of the exported product and such indirect duties /taxes/levies in respect of distribution of exported products.’ Obviously, there can’t be duplication of set-off of taxes paid; the scheme will not be available in respect of duties or taxes ‘already exempted or remitted or credited’. The underlying principle of the remission scheme being to ensure that no duties and taxes are exported.
The scheme could not have come at a more appropriate time. India’s foreign trade has been booming. India’s overall exports for the period of April-July 2021 (both merchandise and services) are estimated to be $204.97 billion, up by 47.87 percent compared to the same period last year and by 15.35 percent over the April-July 2091 period. The trade balance for this period at minus 9.74 percent is also an improvement from the minus 36.32 percent in 2019.Merchandise exports alone stand at a whopping $130.82 billion during April-July 2021 and have grown substantially from the $107.15 billion for the same period last year. The scheme should ease the liquidity position of exporters and give them much-needed relief.
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The scheme, which covers 8,555 tariff lines, has rates ranging from 0.01 percent for high value writing instruments including fountain pens and ball point pens ($ 100 and above c.i.f per unit) to 4.3 percent (for a whole range of woven fabrics of cotton containing 85% or more by weight of cotton and weighing not more than 200g/m2 ). Pharma, steel and chemicals are noticeable omissions from the ambit of the scheme. While the scheme would generally not extend to products, which fall under GST where exports are zero-rated, it would extend to products, which have an element of unrebated embedded taxes like in cases of utilisation of fuel, payment of mandi tax, stamp duty, electricity charges, all of which are outside GST.
The rates are as a percentage of the Free/Freight on Board (FOB) value with a value cap per unit in many cases -- value cap being prescribed as a measure to check overvaluation of exports, resorted to sometimes by unscrupulous exporters. The rebate is subject to receipt of export proceeds with the timelines prescribed under the Foreign Exchange Management Act -- an essential requirement since exports are being promoted to earn foreign exchange. However, the scheme makes it clear that the rebate would be given immediately after export but would have a monitoring mechanism in place to ensure that export proceeds have indeed been realised.
The rebate will be given in the form of a transferable duty credit scrip. The scrips can be used for payment of duty of basic customs duty instead of paying the basic customs duty in cash, the duty liability would be adjusted against the value as shown in the scrip. To this extent, the customs revenue would get impacted. What this would mean is that the revenue impact on account of export promotion schemes (the duty foregone), which as per the last budget was estimated in the region of Rs 62,757 crore for 2020-21, would increase.
This scheme will run parallel to the existing duty exemption and duty remission schemes notified under Chapter 4 of the Foreign Trade Policy. Thus, the Rebate of State and Central Taxes and Levies scheme (RoSCTL) aimed to mitigate the incidence of unrebated state taxes on export of garments and made-ups would continue.
The budgetary provision for RoDTEP, as per the press report, is Rs 12,454 crore. As pointed out by Prof. Indira Rajaraman in her recent article in Mint dated August 6 given the ambitious merchandise export target of $400 billion, the budgetary provision is ‘pitiably small’. The scheme is applicable from January 1, 2021, and with exports having done well, a huge backload would have already been built up. The government would need to increase the budgetary allocation sooner rather than later. Further it is incumbent that there is close coordination between the DGFT IT portal and the ICEGATE, the Customs e-commerce portal to ensure smooth transfer of scrips from the DGFT portal and its hassle-free utilisation by importers. The rates having been notified, the finer contours of the implementation of the scheme should be finalised urgently.
Exporters would need to ensure that they avail of the various rebate and remission schemes extended by the government and make their goods competitive in the global market. The emphasis should be on quality. The emphasis should also be on capitalising on the market access provided by the various Free Trade Agreements. The country expects a lot from the exporters - they have a pivotal role to play in the growth of the economy.
Najib Shah is the former chairman of the Central Board of Indirect Taxes & Customs. The views expressed are personal
Read his other columns here (Edited by : Bivekananda Biswas)
