Written by Sourabh Baser, Partner at BGJC & Associates LLP and Subuhi Gul, Articled Assistant at BGJC & Associates LLP.
India has notified the rate of rebate under the long-awaited Remission of Duties and Taxes on Exported Products (RoDTEP Scheme). Pertinent to note that RoDTEP Scheme was made effective for exports made on or after January 1, 2021. However, the rate of incentives in form of rebate for around 8555 products was notified on August 17, 2021.TheGovernment considers that the Scheme will propel the required spurt in exports from India and help the economy in post pandemic recovery phase.
The Scheme was notified with an objective of remitting such duties or taxes imbibed in the production cost of notified products which were not refunded/remitted to the exporters by way of any other mechanism. It is important to note that exports are treated as zero rated supply under the Goods and Services Tax (GST) provisions and effectively there is no GST impact on the exports. With the rolling out of RoDTEP Scheme, taxes and duties other than GST shall also be remitted back to the exporters as per prescribed mechanism.
RoDTEP Scheme is seen as the replacement of erstwhile Merchandise Exports from India Scheme (MEIS). Important to note that, WTO in 2019 held that the structure of MEIS is violating the laid down norms. Accordingly, the Government announced replacement of MEIS with the RoDTEP Scheme. With the rollout of RoDTEP Scheme, the exporters will be remitted only to the extent of uncompensated taxes and duties incurred in the production of notified products. In terms of the financial outlay of RoDTEP Scheme, it is only INR 12,500 crores for the current financial year which is merely 30 percent of the financial outlay of MEIS for FY 2020. While MEIS benefits for exports to certain countries were not available, there is no such country specific restriction in case of RoDTEP Scheme. The scope of RoDTEP Scheme can be stretched over the period of time across sectors and when in future the overall budget for scheme increases, the quantum of rebate for products might be revisited by the Government.
The incentive in form of rebate under RoDTEP Scheme ranges between 0.01% to 4.3% of Freight on Board value, however, these rates can be revised in advance on annual basis before the beginning of the financial year. Also, rebate on certain products will be subjected to value cap per unit of the exported product. The exporters eligible for rebate shall be issued transferable duty credit/electronic scrip (e-scrips), utilizable against payment of Basic Customs Duty. The rate of rebate under RoDTEP Scheme is a concern for trade and industry as the same is substantially low compared to the erstwhile MEIS. Various industry bodies have sought a revision in rebate rates contending that the notified rates are not sufficient to pour enough liquidity in the system and revive the exporter community.
Another disappointment comes in form of certain specific exclusions from the RoDTEP Scheme. The ineligible transactions include:
- Exports through trans-shipment;
- Export products which are subject to minimum export price/duty;
- Deemed exports;
- Supplies to Special Economic Zones (‘SEZ’) and Free Trade Warehousing Zones (‘FTWZ’);
- Products manufactured in Electronics Hardware Technology Park (‘EHTP’) and Bio-Technology Parks (‘BTP’);
- Products exported under certain other incentive schemes like advance authorization and Duty- Free Import Authorization scheme;
- Products manufactured and exported by SEZ/FTWZ or 100% export-oriented units (‘EOUs’).
In terms of sectoral exclusions, iron and steel, chemical and pharmaceutical sectors are excluded from the RoDTEP Scheme. As per the Government’s assertion, these sectors are performing well and there is no requirement to provide support to these sectors as of now.
Considering the turbulence in post pandemic phase, business community was hopeful of full-blown Government support. However, the exclusion of key sectors and other specific exclusions poses a doubt as to whether India would be able to encash the post pandemic growth momentum across the globe.
As on date, RoDTEP Scheme is the only incentive for the exporters of goods in India and is a welcome initiative. However, given the lower rate of rebate on exported goods, the competitive advantage it will give to exporters is one thing to look upon in future. Further, the long list of ineligible transactions needs to be curtailed down to ensure that the larger section of exporters are benefitted. Also, given the total financial outlay, it is important to see how much growth in the quantum of export is there after the RoDTEP Scheme is implemented. As highlighted earlier, in case of RoDTEP Scheme, the financial outlay is only 30 percent compared to the MEIS and the rebate rates are also substantially low. Earlier also, regulators were keen to withdraw the MEIS as it failed to spurt the export volumes from India to an expected level.
With the rebate rates of products being notified under the RoDTEP Scheme, exporters of goods have started to rework on their key benchmarks to ensure that maximum benefit under the Scheme can be availed. However, the service exporters are still hopeful of similar benefits in place of Service Exports from India Scheme (SEIS), which was abolished last year. Another, important event being eyed by the industry is rollout of the Foreign Trade Policy by end of September, 2021. The industry is skeptical about the new Foreign Trade Policy and rightly so because of the highly placed expectations not being fulfilled by the RoDTEP Scheme.
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