New export scheme: Cost to far exceed Niti Aayog’s estimate of Rs 10,000 crore/yr, says GK Pillai

The Pillai committee was formed on July 30 to suggest the RoDTEP rates, among others, and submit a report in three months.

The outlay for a key scheme, under which exporters will be reimbursed for all embedded taxes paid on inputs consumed in outbound shipments, could be “much higher” than the Niti Aayog’s much-curtailed estimate of Rs 10,000 crore a year, GK Pillai, former commerce and home secretary, who now heads a panel to fix the refund rates, told FE.

Although Pillai refrained from offering a precise estimate of the allocation under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, he said the committee’s intention is not to leave out any event that causes tax content in exports. All the imposts that are not subsumed by the goods and services tax (GST) will be built into the RoDTEP rates, in a potential relief for exporters battered by the pandemic.

The government had envisaged an annual allocation of about Rs 50,000 crore under the RoDTEP scheme to make exports zero-rated. This new scheme is to replace the extant Merchandise Export from India Scheme – under which exporters were granted benefits worth about Rs 45,000 crore in FY20 – from January 2021.

But the latest Niti proposal had stoked fears of a massive reduction in either the coverage of sectors or the reimbursement rates under the RoDTEP scheme and cast a shadow over an export recovery following the Covid-19 outbreak. While the government is yet to endorse the Niti suggestion, the resource-strapped revenue department has capped the MEIS outlay at just Rs 9,000 crore for the April-December period of FY21, forcing the commerce ministry to block an online module for exporters to apply for such incentives for close to a month now.

The levies that will be considered while fixing the RoDTEP rates include state VAT/ central excise duty on fuel used in transportation, captive power and farming; mandi tax; electricity duty; stamp duty on export documents and purchases from unregistered dealers; embedded central GST and compensation cess; tax paid on transportation; cesses and royalties in case of minerals like coal and iron ore. Such imposts typically inflate exporters’costs and contribute to Indian products losing competitive edge in the global market.

Merchandise exports have been contracting since March. They witnessed a record 60% crash, year-on-year, in April, although the contraction narrowed to 37% in May, 12% in June and 10% in July, as lockdown curbs were lifted substantially from June. But any sharp reversal in the benefit structure, especially in times of a demand compression in the key US and Europen markets, will potentially jeopadise the export recovery, exporters have already warned.

The Pillai committee was formed on July 30 to suggest the RoDTEP rates, among others, and submit a report in three months. A supplementary report, if required, may be submitted two months after that, keeping in view “any issues that may arise”.

An earlier committee under Pillai had undertaken a similar, comprehensive exercise in textiles and readymade garments (under chapters 62 and 63 of the harmonised system code). Taxes up to the local level, and including central and state-level taxes, were estimated. For instance, cotton being a principal input in the textile value chain, the panel had to compute the tax incidence in textiles and garments due to the tax on fertilisers used by cotton farmers. So, the exercise is an elaborate and meticulous one, he said.

The duty drawback division of the finance ministry is assisting the committee in the exercise, Pillai said. Efforts are on to submit the report within the deadline for the specified tariff lines, the former secretary said. But he conceded that a thorough process, covering all items (at the six-or-eight-digit HS code levels) may take even 1-2 years.

The Centre had in 2016 decided to reimburse all embedded state levies paid by garment exporters. Later, the scope of the scheme was expanded to include central levies in it. With RoDTEP, the government will cover all other products.

Since tax rates keep on changing, the RoDTEP rates may need annual adjustments.

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