Exim policy -- A few grey areas still exist

Robin Banerjee

It is now more than a week since the latest amendment to the Export-Import Policy of India has been released-enough time to sit back and take a considered view. Let us consider the effects of some of the key changes made in the recent exim policy.

EOU/EPZ/EHTP/STP: Let us first take up this area wherein the changes in the latest exim policy have been the maximum. The commerce ministry has indeed taken great pains to simplify the procedural impediments in managing exports out of such units.

Now all type of `goods' can also be imported `free of cost' or on `loan' basis. Earlier, this facility was only available to importation of `capital goods' on loan basis. This facility of free imports from clients abroad is a good facility which is available internationally but was so far denied to Indian exporters.

While `second-hand capital goods' cannot be imported into India any longer (being restricted and requiring specific licence), second-hand capital goods can now, however, be imported by EOUs/EPZunits. Good sense prevailed upon the Government not to restrict second-hand capital goods in EOU/EPZs as this would have definitely hampered future investment in export related activities.

A provision has been made for providing corporate income tax holiday for a block of 10 years. However, in order to make this scheme implementable, Section 80HHC of the Income Tax Act has to be amended (which currently provides tax holiday for only five years in a block of eight years). Even the Income Tax amendment bill which is awaiting parliament's clearance does not contain this amendment.

Sale of rejects in the domestic tariff area (DTA) have been liberalised and the earlier limits (beyond 5 per cent DC and customs permissions) have been removed. However, the rejects sale shall be counted as part of the DTA sale entitlement.

Sales in the DTA entitlement have been increased to 50 per cent from the earlier limit of 25 per cent for all sectors. This is subject to the payment of applicable duty 50 per centof customs duty or excise duty, whichever is higher) and fulfilment of minimum net foreign exchange earning norm. Higher sale of DTA by all units should therefore help EOU/EPZ units to launch domestic brands and maximise capacity utilisation.

Simplification has been carried out in the matter of sub-contracting and job work procedure for EOU/EPZ units. They can now obtain an annual permission from the assistant commissioner of customs for sub-contracting part of their production in a DTA/EOU/EPZ unit, and will also be eligible to export directly from the premises of the job worker.

It provides the facility to take advantage of surplus capacity available elsewhere in the country to increase export production at competitive cost.

Disposal of scrap/waste/remnants in the DTA is now permitted on payment of applicable duties, without any restriction. Earlier such disposal was subject to percentage limitations fixed by the Government. Now, as long as the duty is paid, there is no percentage restrictionits disposal.

The proposal to convert EPZs into Free Trade Zones is in the right direction. The FTZ is likely to be operational from July 1, 1999 and shall not have any export obligation, pre-determined value addition, input-out and wastage norms.

EPCG:

Importation allowed only for "new" capital goods. Therefore, second-hand capital goods cannot be imported any more under this scheme. Non-allowing of second-hand capital goods will definitely affect future investments in export related activities as this is a good option of reducing investments in areas where there is cut-throat competition and international customers are unlikely to pay for costs incurred in installing new capital goods.

While the threshold limit for zero duty have been reduced to Rs 1 crore for textiles, plastic, chemicals, machine tools sector, there is still some confusion regarding the general threshold limit. Para 6.2 of the exim policy provides zero duty limits for capital goods of "Rs 1 crore" or more. It seemsit is a printing error and possibly the figure should read as "Rs 20" crore. A quick clarification in this respect would clear doubts.

EPCG export obligation may also be fulfiled by export of "same" goods, for which EPCG licence obtained, but manufactured in different manufacturing units of the licence holder. This gives greater flexibility in meeting export obligation from non-EPCG factories available to the licence holder.

Duty exemption scheme :

The annual advance licence scheme has been introduced in place of the earlier production programme scheme. The new scheme is available from July 1, 1999 but production programme scheme has been deleted as on April 1, 1999. What happens during the intervening period of three months? It seems that normal advance licensing scheme will only be applicable. Thus, proposed simplification has even withdrawn the earlier simplified system.

Advance licence shall be granted for inputs which are `physically incorporated' in the export production. Thewording therefore will create confusion as nexus between inputs and outputs have to be established once again regarding `physical incorporation' of the goods being imported duty-free. The wording of earlier Para 7.2 of the policy was clear and helpful in administering the scheme. The term "physically incorporated" should be deleted.

The value addition requirement for export to Russia under rupee payment system is reduced from 100 per cent to 33 per cent. This is a useful change.(iv) The regional licensing authority can now only issue licences upto Rs 50 crore for products having input-output norms. This is not a useful policy for exporters as it means that for licences outside input-output norms and even for small values, the exporters have to now run to Delhi to obtain a licence.

There are still certain problem areas which need to be sorted out and it is hoped that the Government gives heed to the plea of the exporters, so that India's international competitiveness increases.The author isgeneral manager with Hindustan Lever and the views expressed are his own

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