The Engineering Export Promotion Council (EEPC) wants the Centre to mount pressure on the states for immediate refund of the state-level taxes to give exporters some cushion from the effects of the rising rupee.
Rakesh Shah, the EEPC’s chairman, told FE that the directorate general of foreign trade (DGFT) has started a study on the impact of state-level taxes on cost of exports immediately after the rupee appreciated to Rs 39.80 against the US dollar.
State-level taxes such as electricity duty, central sales tax, mandi tax, octroi, entry tax and value-added tax add 2-5% to the cost of exports, but most states do not have a proper refund mechanism.
While West Bengal imposes VAT and electricity duty, Maharashtra, Orissa and some of the other states impose octroi, mandi and entry tax. The refund would give some relief to exporters, Shah said.
The EEPC, which had the highest share in India’s total merchandise export in 2006-07, is also lobbying the commerce ministry to exempt service tax on export related activities and give full effect to the Rs 1,400 crore rescue package aimed at helping meet the goal of $160 billion in exports.
Shah said that although the finance ministry has said it would consider exempting freight from service tax, it has not said anything about the services of the commission agent.
Of the Rs 1,400-crore package, the Rs 600 crore benefit pertaining to pre- and post-shipment bank credit at the benchmark prime lending rate minus 4.5% has been cancelled out by the hike in benchmark interest rates.
The centre plans to spend Rs 800 crore to give enhanced rates of tax refunds through duty drawback scheme on nearly all products.
“There is no use in announcing sops if they do not translate into reality. Exporters are now more eager to get back their money lying with the government rather than getting additional sops,” Shah said.
He said export promotion councils and the government should work together to identify long-term corrective measures that can check inflows of foreign funds and prevent rupee appreciation.
The government should move towards capital account convertibility to bring about a floating exchange rate, more efficient for determining the long term value of rupee, Shah said.