The commerce ministry has asked exporters to submit a memorandum to the 13 th Finance Commission with detailed data on the refund of state level taxes they are seeking.
The ministry has already prepared a position paper, asking the Finance Commission ?to give an award in such a way that the amount, which the states do not reimburse, should be held back from the states provided in the central budget to the Department of Commerce in the states.?
Commerce secretary GK Pillai said the government is in the process of supplementing the position paper. ?The industry has to back it up with much more data,? Pilllai told FE.
The commerce ministry?s decision came after EEPC India in September 2007 asked the Union government to mount pressure on the states for refund of state-level taxes, which could give some cushion to exporters from the effects of the rising rupee.
According to commerce ministry officials, state level 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.
The directorate general of foreign trade, after a study on the impact of state level taxes on exports, has pointed out that even as the rupee depreciates, states should refund taxes so that exports become more competitive.
EEPC India chairman Rakesh Shah said although West Bengal is supposed to refund VAT to exporters, the state has not yet been able to set a proper VAT refund mechanism. So, blocking the refund amount from the budgetary allocation will save the states from setting up a refund mechanism as well as help exporters to get back their money faster.
Pillai said exporters ?have to make out a case and give it to the Finance Commission so that by the end of next year it is able to make a report.?