EEPC India, the apex body of engineering exports, has sent a memorandum to the 13th Finance Commission, seeking a refund of state-levied taxes from the Centre. It has been a longstanding demand but EEPC eastern region chairman, RP Sehgal, hopes the process will speed up now.
The last UPA government had prepared a paper, asking the Finance Commission to give an award in such a way that the amount the states did not reimburse to exporters, is held back from the budgetary allocation to states. Engineering exports constitute the single largest commodity in India?s merchandise exports, comprising one fifth of India?s total exports.
Sehgal also said with the Budget likely in July, EEPC would push the finance and commerce ministries to get its state level taxes refunded in the first budget itself. State taxes, such as electricity duty, central sales tax, mandi tax, octroi, entry tax and VAT, add 3-5% to the cost of exports. While West Bengal imposes VAT and electricity duty, Maharashtra, Orissa and some of the other states impose octroi, mandi and entry tax. Sehgal added that although states in western India have begun refunding taxes after exports were hit due to the economic meltdown, eastern states are yet to start the process. For instance, West Bengal has not yet been able to set up a mechanism to refund VAT to exporters. Blocking the refund amount from the budgetary allocation would save the state from setting up a refund mechanism, as well as help exporters get back their money faster, argued Sehgal.
?We have Pranab Mukherjee as finance minister and GK Pillai is hopefully being promoted to the rank of Cabinet secretary. So we are optimistic about a solution now,? Sehgal said.
EEPC has been asking the Centre to mount pressure on the states for the refund of state level taxes from 2007, but files have been moving slowly. The need for a refund was felt acutely when the rupee was rising. A directorate general of foreign trade study has pointed out that even as the rupee depreciates, state level taxes should be refunded for Indian exports to become more competitive.
According to Anupam Shah, EEPC vice-chairman, Indian engineering exports need to shift their focus from traditional markets like the US and the European Union to non-traditional markets to continue its growth trajectory. Even as the country?s engineering exports have shown an overall growth of 13.45% during 2008-09 touching $ 38.26 billion, a month-wise analysis shows that ?engineering exports started with a huge growth of 69% in April 2008 over April 2007 but ended with a 44% decline in March 2009 over March 2008,? Shah said. Engineering exports touched $3.15 billion in 2007-08, registering a 22.27% growth over the exports of 2006-07, which stood at $27.11 billion.