India stops exports tax incentive scheme

The Indian government has decided to end a tax incentive scheme for exporters on June 30, the country's revenue secretary said on Wednesday, as the export industry in Asia's third-largest economy was doing well and needed no incentives.

* Govt loss estimated at 80 bln rupees from DEPB-govt official
* DEPB to be phased out on June 30
Speaking to reporters, Sunil Mitra said the government faced an estimated annual loss of 80 billion rupees ($1.77 billion) from the Duty Entitlement Pass Book scheme (DEPB), which began in 1997. We really feel that we are rewarding exports on one hand and losing revenue on the other hand, Mitra said. It will be phased out on June 30. That is the finance ministry's decision, he told reporters. The DEPB scheme is a tax incentive scheme for exporters under which the government reimburses about $1.8 billion a year to exporters on taxes paid on imported supplies. It will still give some relief to exporters if taxes are reimbursed under the drawback scheme, Ramu Deora, president of the Federation of Indian Export Organisations (FIEO), said. The duty drawback scheme is an export incentive scheme also offered by the Indian government that neutralises levies paid on inputs with rates fixed annually, based on the duty structure in the budget. Last week, Trade Secretary Rahul Khullar said India's April exports surged by more than a third on demand for engineering goods, gems and oil products. India's merchandise exports rose an annual 37.5 percent to about $246 billion in the last fiscal year, surpassing the initial target of $200 billion. The country hopes to achieve at least 25 percent exports growth in the 2011/12 fiscal year that ends in March, and aims to double its merchandise exports within three years, Trade Minister Anand Sharma had said last month. In April, the government rolled back a 2 percent interest subsidy paid to exporters, as it seeks to rein in fiscal deficit -- estimated at 4.6 percent of gross domestic product in 2011/12. ($1 = 45.12 Indian Rupees). – www.financialexpress.com

DEPB Scheme To End On June 30: Mitra

The finance ministry said on Wednesday the tax rebate scheme DEPB would not be extended beyond June 30, as the government is losing R8,000 crore on account of it each year. The decision would help the government to shore up its revenues but corporate India has decried the move, saying it would make exports uncompetitive and severely impact growth momentum of the economy.

Major beneficiaries of the DEPB include automobile exporters like Bajaj, Hyundai, polyester fibre exporter Reliance Industries, as well as steel and metal companies including Hindalco, Essar Steel, Tata Steel and SAIL.

"We feel that we are rewarding exports on one hand and losing revenue on the other hand. It (DEPB) will be discontinued with from June 30. That is the finance ministry's decision," revenue secretary Sunil Mitra said.

The 14-year-old Duty Entitlement Pass Book (DEPB) scheme is the most popular among exporters, especially in the engineering and automobiles sectors. Under the scheme, exporters get refund of duties on import content of their export products. The tax refund mechanism was considered to be non-compliant with the World Trade Organisation (WTO) rules and so, the government has been trying to phase-out the scheme for past few years. DEPB is reckoned to be non-compliant with WTO because the tax refund is not based on actual import content (and hence tax) of the export product but on certain assumptions of that. This allows the importing country to challenge and neutralise the benefit by imposing countervailing duties on imports from India.

The government feels that the DEPB beneficiaries could now rely on the duty draw back and other similar tax remission schemes. “What perhaps makes duty drawback scheme less attractive to exporters is the rigorous determination of rates,” said Himanshu Tewari, Partner, BMR Advisors.

“Withdrawal of the cheme will have a serious blow to the exports growth momentum achieved in the last few quarters," CII said in a statement.

Earlier, Commerce Secretary Rahul Khullar had said there was a merit in the finance ministry's argument that when exporters were doing so well "where is the need to continue sustaining them by throwing money at them?" He added that the exporters can always draw the tax rebates through other windows like duty drawback Scheme.

However, the rates of refund in the drawback scheme is much lower than those available under DEPB. President of the Federation of Indian Export Organisations (FIEO) Ramu S Deora had cautioned that exports after touching $246 billion in 2010-11 would drop to less than USD 200 billion this year, if the DEPB is withdrawn.

India’s exports registered the highest ever growth of 37.5% at $245.9 billion during 2010-11, demonstrating a robust demand for Indian merchandises both in western economies as well as in new markets like Latin America.