Garment Exporters Losing Edge In Quota Markets

New Delhi, October 24: | Updated: Oct 25 2002, 05:30am hrs
Ready-made garment exporters are gradually losing their competitiveness in quota markets like the United States, European Union and Canada on account of escalating cost at home and high import duty imposed by these countries. Moreover, the revenue department has initiated a move to verify the present market value of exports to fix duty entitlement passbook rates, according to Apparel Export Promotion Council.

The council further says the 100 per cent tax exemption available to exporters under section 80-HHC of the Income-Tax Act of 1961 is to be phased out by 2004-05 and this has eroded their capital base. The tax exemption was the only concession available to exporters till the initiation of economic reforms in 1991. These and other issues figured at the councils export promotion committee meeting held here on October 18.

As per the Planning Commissions mid-term appraisal (1997-02) and a recent World Bank study, the tax element on domestic cotton producers works out to 15 per cent. Again, going by the expert committee report on textile policy, the transaction cost in the country is as high as 15 per cent of export earnings.

According to the council, the major components of transaction cost consist of credit, local taxes like sales tax, octroi, entry tax, electricity cost and port handling and transportation charges, all of which have inflated the total cost by over 15 per cent. The council has urged that this additional cost may be reimbursed by raising the duty drawback rates proportionately as drawback is a World Trade Organisation-compatible instrument.

As per the revenue departments guidelines, the present market value shall be the basis for granting the duty entitlement pass book scheme credit and it will be applied on all export products whether the rates are less than 10 per cent or are 10 per cent or above 10 per cent, and maintain that no discriminate and routine verification will be made in these cases.

The council, however, contends that with high import duty prevailing in the quota countries, exporters have not been indulging in over-invoicing the FOB value of readymade garments. The duty charged ranges from 12-34 per cent in the US, 8-13.4 per cent in the EU and 7.5-25 per cent in Canada.

Ready-made garments are also exported to non-quota countries like Russia, Japan, Switzerland, South Africa, Mexico, Poland, Norway and New Zealand, all of which charge import duty as well, the council points out and suggests that the revenue department restricts its present market value verification in respect of non-status holders undertaking exports to countries like Dubai, where the import duty is low.

The non-status holders are other than those of export, trading, star trading and super star trading houses.