The Duty Entitlement Pass Book (DEPB) scheme for exporters might continue for a few months beyond September, a senior commerce ministry official told FE on condition of anonymity, adding that the current end date of September 30 looked unrealistic given the fact that devising an alternative scheme could take longer.
The idea of replacing the popular scheme, which covers more than half of India’s export basket, with an alternative in three months has not gone down well with the commerce ministry. The ministry feels that an alternative scheme would take longer and therefore another extension of the DEPB would be inevitable.
The official said: ?There are so many items (2,750 to be precise) under the DEPB scheme. Determining appropriate drawback rates for all of them would require a lot of paperwork and adherence to procedures. Further extension of DEPB would be needed and we would take up the issue with the finance ministry.”
DEPB costs some R8,500 crore to the exchequer annually and once the scheme is replaced with a duty drawback scheme, the burden would be reduced by R4,500 crore. Since the benefits are determined by the principle of averaging rather than actual tax content in the export product, DEPB is countervailable under the relevant WTO agreement.
Meanwhile, exporters are estimating that the transition of DEPB to an alternative duty drawback would require 9-12 months. Federation of Indian Export Organisations (FIEO) president Ramu Deora said, “The replacement of DEPB with the duty drawback scheme is okay. But for this, rates of around 2,750 items should be calculated and fixed, a task that would take longer than three months. We feel that the DEPB scheme should continue till Goods and Services Tax (GST) is introduced.?
A section of exporters also feels that the scheme should have been extended till the introduction of the GST and that the short-term extension would create uncertainty. Sanjay Budhia, chairman of the Confederation of Indian Industry’s (CII’s) national committee on exports, said the scheme should be extended till March 31, 2012, or till the GST was introduced.
Earlier, the government had indicated that the scheme would be withdrawn by the end of this month, but with exporters lobbying hard and corporates writing to the finance minister, the scheme was extended for three months and is now set to expire on September 30, 2011.
Commerce Secretary Rahul Khullar had said the DEPB was being extended so that there could be a smooth transition to the duty drawback scheme.
Interestingly, the 14-year-old journey of DEPB has witnessed several extensions. Applicable since June 1997, DEPB is a popular scheme with the exporters which ensures that the incidence of customs duty on import content of export products is neutralised and reimbursed to the exporters.
The official further said that the ministry would also be meeting the export promotion councils, exporters’ associations and industry chambers to carry out a review and hear them before shifting the exporters from DEPB to duty drawback.
As of now, the rates, as well as coverage under duty drawback, are much less than in the DEPB scheme. Also, about 60% of the funds under the DEPB scheme go to chemical and engineering sectors. Exporters avail of DEPB instead of duty drawback because the latter involves a complex refund system and the number of products covered under it is less than those under DEPB.
Reacting on the DEPB alternative, Deora further said that ?in the long run, the government should definitely bring all products under the All-Industry Duty Drawback Scheme and should also involve industry bodies in fixation of the rates for accuracy of the data and transparency in fixation?. Finance secretary Sunil Mitra had said that an official committee would decide as to what extent the exporters could be compensated when they shift from the DEPB to an alternative duty drawback scheme.
