MEIS to be phased out, Centre to refund levies

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Published: July 30, 2019 4:42:12 AM

The commerce ministry has circulated a Cabinet note to phase out the flagship Merchandise Exports from India Scheme (MEIS) and move to a more WTO-compatible regime, as countries like the US have challenged India’s export “subsidy” programmes, a source told FE.

The scheme will be monitored by the ministries of commerce and finance (department of revenue).

The commerce ministry has circulated a Cabinet note to phase out the flagship Merchandise Exports from India Scheme (MEIS) and move to a more WTO-compatible regime, as countries like the US have challenged India’s export “subsidy” programmes, a source told FE. As reported by FE, the new scheme will refund both state and central levies on inputs consumed in exports and various sectors will be covered in phases.

As per the plan, exporters will be refunded levies that are not reimbursed through freely transferable scrips. The duty drawback panel under the finance ministry (with inter-ministerial representation) will fix the rate of scrips for various products. The scheme will be monitored by the ministries of commerce and finance (department of revenue). A source had earlier said: “The basic idea is to keep exports zero-rated in accordance with the best global practices, while ensuring that all our schemes remain fully WTO-compliant.”

Though the GST regime has subsumed a plethora of levies, some still remain (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).

Already, such a scheme for the remission of state and central levies has been implemented in garments and made-up exports. The next foreign trade policy (FTP), which will kick in from April 2020, could see the revamped architecture of various export schemes. Currently, the government’s potential revenue forgone on account of MEIS is estimated at Rs 30,810 crore a year.

As for the remission of state levies for garment and made-up exports, the government allocated Rs 3,664 crore in FY19. However, the compensation level under this scheme was expanded in March to include central levies as well, even some embedded taxes were factored in. So the potential revenue forgone is now estimated at around Rs 6,300 crore annually.

However, government officials have made it clear that the entire allocation or potential revenue forgone on account of various such schemes (including MEIS and duty drawback) doesn’t qualify as export subsidies, as in most cases, they are meant to only soften the blow of imposts that exporters have been forced to bear due to a complicated tax structure. MEIS was announced in the current FTP in 2015 by merging five different schemes.

Under this, the government provides exporters, especially in the labour-intensive sectors, duty credit scrip at 2-5% of their export turnover, depending on products and shipment destinations.

The US has dragged India to the WTO, claiming that New Delhi offered illegal export subsidies and “thousands of Indian companies are receiving benefits totalling over $7 billion annually from these programmes”. Indian officials have rejected such claims. However, to prepare exporters, commerce and industry minister Piyush Goyal last month asked the industry to stop relying on “crutches of subsidies” and improve competitiveness.

According to the special and differential provisions in the WTO’s Agreement on Subsidies and Countervailing Measures, when a member’s per capita gross national income (GNI) exceeds $1,000 per annum (at the 1990 exchange rate) for a third straight year, it has to withdraw its export subsidies. According to a WTO notification in 2017, India crossed the per-capita GNI threshold for three straight years through 2015 — to $1,178 in 2015 from $1,051 in 2013.

However, India has argued that just like some others who were granted eight years to scrap export subsidies, it, too, deserves such a time frame to do so. Seeking incentives to stay competitive, exporters have long complained about India’s elevated logistics costs and inflexible labour norms, and also cried hoarse over a ‘strong rupee’.

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