Focus on readymade garments, iron and steel, automobiles and components
The new Remission of Duties or Taxes on Export Products (RoDTEP) scheme for exporters is being readied on priority basis for three select sectors — readymade garments, iron and steel and automobiles & components — while the rates for the other sectors are to be determined subsequently.
“The Committee on RoDTEP, set up by the Finance Ministry earlier this year to determine ceiling rates for reimbursement of input taxes and levies for exporters, has been asked to focus on just three sectors first. Since resources are limited this fiscal, the Centre may first want to extend the scheme to just a handful of sectors. Moreover, it is a laborious task, as embedded taxes are also to be included in the set-off rates, so the process needs to be gradual,” an official told BusinessLine. “The Committee is expected to submit its report on the three identified sectors next month. The Centre has to now choose the next few important sectors on which work can then begin,” the official said.
Last year, the Finance Ministry had announced the new RoDTEP scheme, which was designed to replace the popular Merchandise Export from India Scheme (MEIS) as it was ruled by a World Trade Organisation (WTO) panel to be against multilateral trade norms.
Setting new rates
The Central Board of Indirect Taxes and Customs then set up the RoDTEP committee in July this year to work out the new rates under the scheme.
The Centre has already announced the withdrawal of the MEIS scheme from December 31, 2020, and the introduction of RoDTEP scheme from January 1, 2021, but it now seems that only a handful of sectors may have the new rates ready by that time, the official said. “There is no decision yet on whether there will be a need for the government to extend the MEIS scheme beyond January 1, 2021 for some sectors,” the official added.
Since the Committee has been tasked with the responsibility of determining the input taxes and levies, both at the Central, State and local levels (that are not refunded under other schemes such as mandi tax, electricity cess etc), including the embedded taxes, it is a time-consuming process.
“For instance, in the case of iron and steel, the embedded tax calculation starts right from the mines. If there is diesel and electricity used for transporting the material from the mine, the diesel will have a central excise duty, the electricity will have State electricity duty etc. So, taxes in the transportation cost itself will have to be worked out, which is very time-consuming,” the official explained.
The readymade garments is a priority sector and has already replaced the MEIS with an alternative scheme which has to be swapped with the RoDTEP, the iron and steel, and the automobile and automobile components sectors are on the list as the Centre has picked them up as areas requiring early attention.
The RoDTEP scheme is likely to be above any sort of challenge at the WTO as it will be based on actuals and will not be calculated based on averages like the MEIS scheme, but exporters are apprehensive that the reimbursement rates will be lower.
Due to lack of funds, the government had capped benefits under the MEIS scheme at ₹9,000 crore for the April-December, 2020 period. In the previous fiscal, the outgo under the MEIS was to the tune of ₹40,000 crore.