An exclusion that needs to be remedied is that of Manufacturing and Other Operations in a Warehouse (MOOW)
By Manasvi Srivastava
The announcement of the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme by the Centre on August 17 elicited mixed feelings from exporters. Some have expressed relief at the guidelines and rates of the scheme being notified, while many are disappointed at the rates of remission being lower than expected. Representatives of many exporting sectors believe, in order to incentivise exports, the Centre must give higher rates of remission.
The RoDTEP scheme is meant to neutralise the cost impact of duties and taxes in the supply-chain, which are not otherwise neutralised by duty drawback, tax credits, tax refund or similar existing mechanisms. The government has studiously avoided using the word ‘incentive’ in any of its communiques on the RoDTEP scheme. The reason is that under the WTO rules, specifically under the Subsidies and Countervailing Measures Agreement, financial benefits to exporters provided by the government in the form of incentives are prohibited for countries above a certain stage of development. That was the ground on which the earlier scheme, the Merchandise Exports of India Scheme (MEIS), was held to be violative of WTO rules by a disputes panel in 2019. In view of this, the Centre had announced the replacement of the MEIS scheme with RoDTEP wherein the exporters are compensated only to the extent of uncompensated duty and tax cost incurred in production of export goods.
The schedule of remission rates was put together by the government after painstaking compilation of duties’ and taxes’ cost at various stages of production of export goods. Understandably, the exercise was time-consuming as it involved collection of data in consultation with various industry bodies, examination of the data, and computation of the remission rates based on the same. This was essential so that the scheme could survive any challenge of legitimacy at the WTO. Perhaps this is also the reason why the rates of remission are conservative as authorities decided that they should err on the side of caution. Another factor that could have governed the decision of the government is the high buoyancy visible in India’s exports in the period April-July 2021. It stands to reason that if exports are doing well on their own, then sustained export growth can be better ensured by strengthening infrastructure and trade governance rather than providing financial incentives that could run afoul of WTO. It is expected that the soon to be announced Foreign Trade Policy will emphasise this aspect.
Amongst the items in the RoDTEP list are certain exclusions, with some chapters under the Harmonized System of Nomenclature (HSN) based Indian Customs Tariff completely excluded from the benefit of the scheme. These are tobacco products, mineral products, chemicals, pharmaceuticals and fertilisers, wood pulp, fibrous cellulosic material, apparel and made up textile articles, iron, steel and articles thereof.
Another set of exclusions from benefits under the RoDTEP scheme is mentioned under the heading of ‘Ineligible Supplies/Items/Categories under the scheme’. This list includes among others, exports under Advance Authorisation, Duty Free Import Authorisation, 100% Export Oriented Units, Export Processing Zones, Special Economic Zones, and products manufactured in a customs bonded warehouse. These schemes have existed for quite some time as export enablers and their exclusion from RoDTEP benefits could rob them of some popularity, considering there was no such exclusion under the earlier MEIS scheme. Further, duty drawback administered by the finance ministry, can be claimed simultaneously with RoDTEP benefits. The guidelines issued by the government however hold out some hope for most of these existing schemes, stating that the inclusion of most of the aforementioned categories and their RoDTEP rates would be decided based on the recommendations of the RoDTEP committee. One exclusion however that needs to be remedied, or at least be given beneficial consideration under RoDTEP, is the Manufacturing and Other Operations in a Warehouse (MOOW). This scheme has been highly publicised by the Centre, and has been attracting a good amount of interest amongst global manufacturing companies. It will continue to be attractive if RoDTEP benefits are not denied to those operating under MOOW.
As the government tweaks the scheme with inputs from various industry bodies, it is expected that, along with the soon-to-be-announced Foreign Trade Policy, it will add to the current momentum of exports from India.
The author is Partner (trade and customs), KPMG in India
Views are personal