New Delhi: The finance ministry on Thursday increased duty drawback rates on 102 items to make Indian exports more competitive.
The ministry, however, seems to have ignored the recommendations of a parliamentary standing committee on commerce to allow exporters to use the duty drawback scheme to take care of all the embedded taxes they have to pay under the Goods and Services Tax (GST) regime.
Under the pre-GST regime, government used the duty drawback scheme to refund both excise and customs duties paid on inputs used for exports.
However, after GST was introduced, the government reduced the duty drawback rates and allowed them to be used only for customs duty refunds on inputs used.
The export items that will now enjoy a higher duty drawback include marine and seafood products, automobile tyres and bicycle tyres/tubes, leather and articles made of leather, yarn and fabric made of wool, glass handicrafts and bicycles.
“As a step towards more efficient input tax neutralization on exports, after considering various representations from trade and industry, the government of India has enhanced the all industry rates of duty drawback for 102 tariff items. The revised rates of duty drawback will help address the concerns of these export sectors and make India’s exports more competitive in the global economy," the finance ministry said in a statement.
According to independent trade analyst T.N.C. Rajagopalan, to the extent that exporters get more benefits, the move by the finance ministry is a welcome step.
“However, the problem regarding delay in refund of input tax credit faced by exporters remains," he added.
The parliamentary standing committee on commerce, in its report on “impact of GST on exports" released last month, said both direct and embedded tax refunds under the new GST system is very complicated for small exporters who do not have adequate back office capability.
“The committee recommends that the government provide for a duty drawback rate which would encompass all the taxes including the GST/IGST levied as well as embedded/blocked tax and give a choice to the exporters to either claim the duty drawback or follow the input tax credit route. This will also release the pressure on GST Network," it said.
The committee said sudden withdrawal of the incentives extended earlier under the duty drawback scheme will lead to the collapse of labour-intensive industries and expressed deep concern over the possibility of job losses.
“This will have a cascading effect on employment and livelihood of poor workers in these industries."
The committee said it was informed that trimming down of the duty drawback scheme and consequent erosion of export competitiveness had already set in the problem of layoffs.
Bipin Sapra, tax partner at EY India, said the revision of drawback rates is a welcome relief to exporters and their cash flow, which had been adversely impacted because of delayed refunds and increased input cost in GST, should now improve.