The existing remission of central and state levies scheme, meant for just garments and made-ups exports, will also be subsumed by the new scheme called Remission of Duties and Taxes on Export Product.
Finance minister Nirmala Sitharaman on Saturday announced a new Rs 50,000-crore scheme to make exports zero rated and replace the government’s flagship, but WTO-incompatible, Merchandise Exports From India Scheme from January 2020 to boost faltering outbound shipments that have contracted twice in the past five months.
Since potential revenue forgone in the current MEIS is around Rs 40,000-45,000 crore year, the new scheme —which will reimburse all taxes and duties paid on inputs consumed in exports in sync with WTO norms — is expected to cost the government an additional Rs 5,000-10,000 crore a year. The existing remission of central and state levies scheme, meant for just garments and made-ups exports, will also be subsumed by the new scheme called Remission of Duties and Taxes on Export Product.
Sitharaman also announced a raft of other measures, including easier priority-sector lending norms for exports, greater insurance cover under ECGC and lower premium for MSMEs to avail of such cover, to ensure that exporters get larger credit at cheaper rates. The Reserve Bank of India will soon declare the relaxation in priority-sector lending norms for exports, which will release an extra Rs 36,000-48,000 crore loans to this sector that has witnessed a persistent contraction in credit.
The Export Credit Guarantee Corporation (ECGC) will also offer up to 90% insurance cover to banks lending working capital to exporters, against 60% now. This will likely make banks more comfortable to lend to exporters. As per the government’s assessment, rupee credit will be available to exporters at a cheaper rate of around 8% and dollar credit at around 4%. Similarly, the premium incidence of MSME to avail of such insurance cover will be trimmed, which could cost the government Rs 1,700 crore a year.
Recently, commerce and industry minister Piyush Goyal told the Rajya Sabha that banks’ outstanding export credit, which rose from Rs 1,85,591 crore in March 2015 to Rs 2,43,890 crore in March 2018, dropped to Rs 2,26,363 crore at the end of March 2019.
FE had on August 11 reported that the government was considering a new scheme to fully reimburse imposts exporters pay and also easier lending norms. Additionally, the minister said a slew of steps will be initiated to make Indian exports more competitive — by reducing turnaround time at ports, sensitising exporters through a mechanism to better exploit India’s various free trade agreements and overcome non-tariff barriers imposed by others (especially countries like China).
Coming to the relief of exporters, especially the MSMEs who take working capital loans to pay input credit taxes, the finance minister said refund process will be expedited through a completely-automated mechanism.
Similarly, an inter-ministerial group will be set up monitor export finance data, along with the RBI, to ensure swift intervention, if required. Exporters’ body FIEO president Sharad Kumar Saraf said: “Slew of new measures announced for the exports sector in the form of incentives and refund of taxes, export finance, export facilitation, free trade agreements, engineering and handicrafts will not only go a long way in enhancing the growth prospects of the sector in the short-term, but will also give it a much needed boost in the medium-term and long-term and will stimulate the overall economy.”
To promote handicrafts, yoga, tourism, texiles and leather, the government will organise Dubai-like annual mega shopping festivals in four places in March 2020. To prevent misuse of the rules of origin, especially in cases where free trade agreement is in effect, the government will set up an Online Origin Management System. This will enable exporters to fast obtain certificates of origin of products.
As for the taxes on inputs consumed in exports, though the goods and services tax (GST) regime has subsumed a plethora of levies, some still exist (petroleum and electricity are still outside the GST ambit, while other levies like mandi tax, stamp duty, embedded central GST and compensation cess etc remain unrebated). The MEIS, exporters have complained, doesn’t offset all the taxes, so the new scheme will be beneficial to them.
The move comes at a time when the US has dragged India to the WTO, claiming that New Delhi offered illegal export subsidies and “thousands of Indian companies are receiving benefits totaling over $7 billion annually from these programmes”. Indian officials have rejected such claims.