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Indian garment exporters are right to worry about losing orders due to the uncertainty on the rates of reimbursement under the new scheme to refund exporters duties and taxes embedded in the value of the export.
The delay restricts their ability to price competitively, hurting the garments sector that is dominated by micro, small and medium enterprises. The same holds true for other export sectors as well. The government should swiftly announce the reimbursement rates on the so-called Remission of Duties or Taxes on Export Products (RoDTEP) scheme effective from January 1.
The WTO-compliant scheme will reimburse central and state taxes, duties and cess on petroleum products and electricity, and levies other than the goods and services tax (GST) that are embedded in the value of the export. This is in sync with the principle that countries export goods and services, not taxes.
Export bodies (such as the Cotton Textiles Export Promotion Council and the Garment Exporters and Manufacturers Association) want the Centre to remove the 10% import duty on raw cotton, saying it will make imports of extra-long-staple cotton, particularly from Egypt, expensive.
Basic customs duty is out of the GST chain, unlike countervailing and special additional duties. However, drawback of customs duty should be routine on exports. Clearly, the audit trail that is necessary to link the import duty paid on import of raw cotton to the subsequent stages of spinning into yarn, weaving into fabric and tailoring into garment is faulty. The point is to fix this problem. All indirect taxes must be brought under GST so that exporters only need to claim a refund of the input taxes paid. This would be far more efficient than separate reimbursement schemes.
This piece appeared as an editorial opinion in the print edition of The Economic Times.