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The finance ministry on Wednesday extended by another year the exemption from basic customs duty and integrated Goods and Service Tax (GST) enjoyed by export oriented units (EOUs), said an official order.

The upfront exemption from tax makes it easier for factories in these export-focused enclaves to remain competitive and spares them the paperwork otherwise needed in claiming refunds.

The notification said that the BCD and IGST exemption to these units now remains valid till 31 March 2022.

To make exports competitive, the government either exempts or refunds the tax payable on the raw materials used in items for export. While refunds require paperwork, upfront exemption of tax makes life easier for businesses.

“This is a good news for all EOU’s as the upfront exemption is procedurally simple and easy to avail and has a positive impact on the cashflow," said Abhishek Jain, tax partner at EY.

The move is part of the Narendra Modi administration’s efforts to step up manufacturing activities in the country and make India more prominent in the global supply chain. With this idea, already import duty has been raised on several products and have imposed restrictions on select items such as television sets and tires where India wants to attain self sufficiency.

India is also now reviewing more than 400 old customs duty exemptions for a possible withdrawal. Licensing requirement and quality specifications have been among the steps the government recently employed to promote domestic manufacturing and product quality in select areas. Also, global companies are offered incentives to start production units in India.

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