The government is likely to extend the rate of the remission of state levies (RoSL) under the duty drawback scheme available to garments exporters in the pre-goods and services tax (GST) period by at least three months through December in a bid to support the labour-intensive sector that has witnessed a slowdown in export in recent months. “Some exporters have been demanding that the status quo be maintained until March next year. However, taking into account the stress the sector is going through due to a rupee appreciation and subdued overseas demand, at least three months’ relaxation may be considered. But the revenue department hasn’t yet decided on it,” a senior government official told FE.
The revenue department recently conveyed its decision to trim the RoSL rate to 0.7% of the freight-on-board value from October 1, versus 2.9-3.9% now, sources said. This led to the demand from exporters to maintain the current rates till at least March 2018, which, a some in the government believe, could be hard to offer. So, said the official, an extension of the current rate for at least three more months may be considered primarily for two reasons: The textile and garment sector employs around 3.2 crore people, mostly women, and exports have plunged — from a rise of almost 32% in April to a fall of nearly 12% in July.
The RoSL, under which garment exporters get refunds from the Centre against all the levies they pay at the state level, was the most important scheme (with fiscal significance for the government) in the Rs 6,000-crore garments package announced by the government last year to create 1 crore more jobs, Rs 78,000 crore in additional investments and $30 billion more exports over a three-year period. Following the introduction of GST, the government had initially cut the RoSL rate to a uniform 0.39% up to September 2017, against the pre-GST levels of 2.9-3.9%, arguing most of the state levies — including central sales tax — were scrapped in the GST regime. Only two state levies (value-added tax on petroleum products and electricity charges) would continue under the GST regime as well, on the basis of which the 0.39% interim refund structure was based, a senior government official had then told FE.
Garment exporters, however, protested and requested the finance ministry to restore the earlier RoSL rate, saying the reduction would adversely impact apparel exports. Consequently, the government on August 1 announced the restoration of the pre-GST RoSL rate up to the end of September.
The government has budgeted Rs 1,555 crore for the RoSL scheme in 2017-18, compared with Rs 400 crore a year before. The low allocation last year was due to the fact that the scheme was announced in late June last year and notified in around August. Ashok G Rajani, chairman, Apparel Export Promotion Council, said: “Garment exports will decline if the status quo is not maintained, both in case of duty drawback and RoSL. As such a strong rupee has adversely affected us and demand in key markets still remains fragile. The government should extend the current transition rates till March 31, 2018, to instil confidence in the sector, ensure a smooth transition into GST and also for sustaining the employment in the sector.”
In the absence of encouraging drawback and RoSL rates, exports will further witness a sharp decline just ahead of the peak festival season when the industry was expecting recovery, he added. He said even the new all industry rates (AIR) for garments is fixed at 2%, against 7.7% drawback available until now. Apparel exports had been registering double-digit growth since the start of the disbursement of RoSL (around December last year). During March and April, garment exporters were able to increase production by around 30% and employed at least 5% more workers during the same period, according to AEPC. However, they lost the momentum since June. Garment exports in July, the first month of the GST launch, dropped almost 12%, far worse than a 1.4% fall in the previous month, showed official data.