Ministry for slashing refunds in duty drawback scheme

The government is planning to slash refund rates to exporters by as much as 75 per cent under the drawback scheme to reduce revenue outgo. If implemented, it could be a major setback to exporters who are hit by a slowdown in demand from traditional markets like the EU and the US.

“There is going to be wide difference in drawback and DEPB rates with the former being as low as 75 per cent as the committee working on a replacement scheme for DEPB is not willing to consider various state taxes and transaction costs,” a commerce ministry official told Financial Chronicle.

For example, exporters of forgings and castings get refund at 6.5 per cent under DEPB scheme but the ministry is planning to lower the rate to 1.5 per cent under the drawback scheme.

The drawback scheme will replace the duty entitlement passbook (DEPB) scheme, which will expire on September 30 after a three-month extension.

DEPB scheme, which has been applicable since June 1997, helps to neutralise basic and special customs duty on import content of an export product. This is provided by granting duty credit against the export product at specified rates.

The DEPB scheme covers 2,800 products while there are around 2,000 products under duty drawback scheme.

Various export promotion councils under the Federation of Indian Export Organisations had asked the centre to add state levies like electricity charges and octroi, which make up 2.5-3 per cent of the export value, to drawback rates. It was suggested that even the additional two per cent on transaction cost be added to the drawback rates so that net rates would be closer to existing DEPB rates.

“The addition of state taxes and transaction cost to drawback would require legislative changes and hence the committee would not include these when they come out with final drawback rates in a fortnight,” the official said.

DEPB is the fifth most popular tax neutralisation scheme with benefits estimated at more than Rs 8,500 crore in 2010-11, and nearly 25 per cent of it goes to engineering goods followed by chemicals and textiles. The revenue outgo under drawback scheme is Rs 6,000 crore.

Other schemes for exports that drain government coffers are the advance licence scheme (Rs 15,700 crore), export promotion capital goods (Rs 10,000 crore), export oriented units/software technology parks (Rs 9,700 crore) and special economic zones (Rs 8,600 crore). In all, the centre had forgone revenue of Rs 58,000 crore in 2010-11 to boost exports.

Source : www.mydigitalfc.com