Corrective Action Needed To Enhance Exports

Updated: Jun 18 2004, 05:30am hrs
The governments objective is to make India a hub of manufacturing and a service provider to the world. Suggestions and ideas that can help boost exports and strengthen the exporters hands are: Continue With Benefits India, compared with competitors in Southeast Asia, suffers a number of handicaps in the matter of export-related infrastructure, cost of finance and transaction cost. Our first concern is the adverse impact of the complete withdrawal of the benefits of Section 80-HHC from assessment year 2005. Fierce competition, thinning profit margins, high transaction costs plus volatility of the rupee-dollar equation are factors that can deter exporters to shy away from the business.

To sustain the growth momentum, we suggested that benefits of Section 80-HHC be continued till 2010. Since the introduction of these benefits in April 1983, exports have shown a significant increase. If these benefits are stopped as per schedule, entrepreneurs will have a disadvantage as a similar benefit will continue for units in the special economic zones (SEZs) under Section 10-A, and for export-oriented units (EoUs) under Section 10-B of the Income Tax Act. These small and medium sized units, under the purview of Domestic Tariff Area (DTA), are contributing around 85 per cent of Indias exports and, therefore, need support. We, therefore, requested the FM to continue the benefits of Section 80-HHC to such units till 2010.

Re-introduce Allowances
The transaction cost for exporters is quite high compared with their competitors in neighbouring countries. The government has also conceded this point. To help exporters combat this cost, we would like re-introduction of Section 35-B (Export Market Development Allowance) which was withdrawn in 1987. This Section, introduced in the Finance Act 1968, allowed weighted deduction of an amount equal to 1.33 times the amount of the qualifying expenditure. Alternatively, the government can introduce a scheme which was earlier available under Section 35-A of the IT Act, under which a deduction equivalent to 133 per cent of the investment was allowed for being ploughed back into business.

DEPB Blues
Exporters are also experiencing difficulties in the matter of the Duty Entitlement Pass Book (DEPB) scheme. This scheme is essential for refund of duties in the form of credit and, as such, is similar to the Duty Drawback Scheme. However, this scheme has not been included in Section 28 of the Income Tax Act (perhaps inadvertently). Because of this, field formations are not accepting DEPB as export income for computation of export profits under Section 80-HHC, as is being done in the case of duty drawback. This is hurting exporters, especially those in southern and western India. We have suggested that Section 28 of the IT Act be suitably amended with retrospective effect to resolve the problem.

Input Tax Exemption
Exporters support the governments decision to implement VAT as it will include zero rating of exports for manufacturers and exporters, including inter-state exporters. However, a mechanism should be devised by which merchant exporters would be able to claim reimbursement of the input tax paid at the earlier stage of manufacturing. In addition, we would like the government to exempt manufacturer-exporters, who are exporting 75 per cent or more of their production, from input tax through a system akin to Form C in the Sales Tax Act.