Though the thrust on streamlining procedures is welcome, it is important that the policy works as a coherent whole. A policy announcement not backed by suitable notifications or differing interpretations from ministries tends to frustrate trade and industry. A point in reference is the proposed Special Economic Zone Act by the commerce ministry, which provides for continuance of income tax exemption for 10 years to units and the developer of SEZ. On the other hand, the Kelkar Task Force (KTF) Report recommends denial of benefit to new units, which commence operation on or after September 1, 2004, or phasing out the benefits over a period of next two years even for existing EoUs (export-oriented units) and SEZs.
There is also need to develop a mechanism to grant exemption or refund of services tax as the proposed integration of excise and service tax will not be helpful to EoUs. One hopes the ministry will ensure that there is unanimity of opinion on various policy measures in different government departments this time round.
However, to achieve the targeted share of 2 per cent of world trade by 2012, policy formulators should take note of the structural changes in world trade and develop new initiatives for export promotion. A recent World Trade Organis-ation report, analysing trade trends from 1985 to 2003, points out that in recent years the growth in services trade has been almost equal to manufacturing trade. Lower growth has been noticed in mining, textiles and iron and steel. However, export of processed farm products expanded faster than those of semi-processed and unprocessed farm products.
The other sector that witnessed fast growth was office and telecom equipment. With a world-class plastics industry and a strong pool of technical manpower, India can also bid for an important share of office and telecom equipment export market if the right kind of alliances are forged globally.
New Drawback Schedule
The finance ministry is busy finalising the new drawback rates in the light of the changes in customs and excise duties, the 2 per cent education cess and commitment of the finance minister on integrating tax on goods and services. It is expected that the rates for steel products may be revived.
As the scrapping of the DEPB scheme seems imminent, there is need to expand the all-industry drawback rates list. For example, plastic has a DEPB rate for 152 items while drawback has 27 items only. A finer classification of products for duty neutralisation will impart dynamism to exports. Exhau-stive product coverage under standard input output norms, as notified by DGFT, could be the basis for fixing drawback for new items. The KTF has also recommended merger of the DEPB scheme with drawback.
Import Under EPCG
The Supreme Court, on July 21, 2004, in the case of Rupa and Co, has held that the coverage of the term capital goods for EPCG scheme would also include items that are not directly used in the manufacture of resultant products but are still required for the purpose of manufacture of resultant product. The issue came up on an appeal by the customs requesting denial of exemption under the EPCG scheme to a garment exporter because the machinery imported by the exporter was not directly related to manufacturing of textile garments. This SCs decision will help reduce disputes with customs on the usage of the EPCG scheme.
The writers are consultants on international trade with Mehta & Associate and can be contacted at email@example.com