The government has budgeted only Rs 13,000 crore for a scheme that is supposed to reimburse embedded levies paid on inputs consumed in exports in FY22, drawing a sharp reaction from exporters who warn of a delay in recovery in outbound shipments in the wake of the Covid-19 outbreak.
The outlay for the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme is way below the annual allocation of Rs 50,000 crore that the government had initially envisaged. Also, it’s only a third of the Rs 39,097 crore the government approved for exporters in FY20 under the Merchandise Exports from India Scheme (MEIS) that the RoDTEP has replaced.
Following a Covid-induced plunge in revenue mop-up, the government had drastically cut MEIS allocation to Rs 15,555 crore in the first three quarters of the current fiscal, much to the consternation of exporters.
Similarly, exporters said the latest finance Bill has proposed to amend the IGST Act, which would scrap an existing “seamless” refund facility for exporters (other than the designated ones) against their IGST payment on shipments. Any such change will force them to claim the IGST refund through the more time-consuming ITC (input tax credit) route. Exporters say while they currently get the refund as quickly as in 15 days, under the ITC route, it would take well beyond six months, in addition to a surge in paperwork for them. Moreover, their working capital, to that extent, will remain blocked for a longer period.
Commenting on the sharp cut in the RoDTEP outlay for FY22, Federation of India Export Organisations (FIEO) president Sharad Kumar Saraf said it is impossible to offset the blow of all the embedded levies within an annual outlay of just Rs 13,000 crore (about $1.8 billion) when exports are typically above $300 billion a year. Also, since these are mere reimbursements of various taxes that exporters are not supposed to pay in the first place, these are not “benefits” or “incentives” as touted to be. Some exporters said they fear the government would effect a steep cut in the RoDTEP rates to rein in the outgo within the stipulated amount.
Also, they asked the government to firm up the RoDTEP rates for the export of different products at the earliest. Since exporters typically factor in the “incentives” they get under key schemes while firming up deals, the absence of clarity on RoDTEP rates is hurting their prospects, they said. While the government has rolled out the scheme from January 1, it is yet to announce the rates.
A committee set up under former commerce secretary GK Pillai in late July last year is yet to finalise the RoDTEP rates for all products, as it’s a humongous exercise.
The RoDTEP scheme is proposed to cover levies that are not subsumed by the GST (petroleum and electricity are still outside the GST ambit, while other imposts like mandi tax, stamp duty, embedded central GST and compensation cess, etc, remain unrebated).
In a media interaction, FIEO director general Ajay Sahai said the Budget has also announced a confiscation of goods under wrongful claim of refund/remission. This is particularly “harsh, as confiscation of goods will not only hurt the exporters but will also affect the country’s exports as well as its image”. Moreover, the word “wrongful claim” is subject to various interpretations and will put exporters at the mercy of field formations, bringing back the fear of ‘inspector raj’.
According to a FIEO estimate, after a Covid-induced contraction this fiscal, India’s exports could rise to $340-350 billion in FY22 as the advanced economies are expected to recover from the shock of the pandemic. However, much depends on how the government implements the RoDTEP and remove other irritants, they say. Exports are expected to drop by about 8%, year on year, to $290 billion in FY21.