Govt slashes sops on exports; 1,100 items to be hit

Govt slashes sops on exports; 1,100 items to be hit

New Delhi: As a setback to exporters, shipments of 1,100 items will be entitled to lower tax refunds from 1 October when curtains draw on the popular Duty Entitlement Pass Book (DEPB) scheme, government announced on Friday.

On export of these items, the tax refunds would be reduced by 1-3%, finance secretary R S Gujral said while unveiling the transitory scheme for the DEPB scheme.

“As a transitory arrangement, these items will suffer a modest reduction in the existing DEPB rate to the extent of 1-3%..." he said.

Industry sources said the reduction amounts to withdrawal of the stimulus package given in 2008-09 after the global financial crisis. The DEPB rates were revised upward as a stimulus, they said.

Since tax incentives for these goods will now be available under the Duty Drawback Scheme (DDS), the total number of items under the DDS would increase to about 4,000 from present 2,835.

While different avenues are available to exporters for refund of the duties, the DEPB is the most preferred route for its flexibility and attractive rates which average about 8%.

The government had spent 8,700 crore last year on DEPB refunds and engineering, chemical, pharma, textile and marine products have been the major beneficiaries.

With withdrawal of the DEPB scheme, the government’s revenue forgone will be less, CBEC S D Majumdar said.

Since the DEPB scheme will not continue beyond 30 September, it has been decided to provide a smooth transition for these items (mainly engineering, chemical, pharma, textile and marine) while incorporating these in the drawback schedule.

Besides, the tax refunds for the items already under the DDS have also been reduced.

“The reduction is mainly on account of the reduction in basic customs duty on crude petroleum from 5% to nil as well as a reduction in central excise duty on diesel from 4.4 per litre to 2.4 per litre," he said.

Of the 1,100 being shifted to DDS, there would be a ceiling of 5.5% tax refund rate on 660 items.

However, the ceiling would not apply to 340 items worsted woollen yarn, blanket, nylon twine, cut polished chat stones, polyester metallised film.

Though exports have shown a remarkable performance, growing by 54.2% between April-August 2011 to $134.5 billion, there are concerns that the momentum may not be sustained in the wake of increasing economic problems in the US and Europe.

Regarding the automobile sector, Gujral said 2-wheelers, 3-wheelers, commercial vehicles and tractors exporters would now get duty drawback.

Similarly, exporters of passenger cars, who are allowed to opt for brand rate of duty drawback, have now also been placed under the All Industry Rates (AIR) of duty drawback, likely to be notified by 23 September.

“Government has received requests through Society of Indian Automobile Manufacturers for inclusion under the AIR drawback schedule and the same has been accepted," Gujral said.

The government has also decided not to impose any value cap (meaning no upper price limit on a product to get duty benefit) on the transport sector.

“With these measures, it is hoped that the auto sector, the primary beneficiaries under DEPB, would be able to make a smooth transition to the drawback scheme," Gujral added.

Besides, there are about 1,030 overlapping product lines, meaning they figure both in DEPB and DDS.

In this case, the government has decided that to the extent possible, the drawback rates be aligned so as to “provide uniformity to exporters".