Centre may Allocate ₹10,000 cr for New RoDTEP Scheme

· Textiles, Auto Components and Engineering Rates Expected Soon

The Centre may need ₹60,000- 70,000 crore for the new duty drawback scheme for exporters, which replaces the Merchandise Exports from India Scheme (MEIS). However, the central government may not be able to provide for the entire amount in the FY22 budget, former commerce secretary G.K. Pillai, who heads the committee to decide the reimbursement rates, said.

The new Remission of Duties and Taxes on Exported Products (RoDTEP) scheme came into effect on 1 January, but the rates are yet to be finalized. Exporters will receive retrospective benefits once the rates are firmed up.

“The government just does not have the money this year. I think they are giving only ₹10,000 crore for RoDTEP (in the Budget). My estimate is it may need ₹60,000 -70,000 crore. You will know how much they finally allocate within two weeks," Pillai told Mint. Finance minister Nirmala Sitharaman will present her third budget on 1 February.

Pillai said the committee has already submitted its first report to the commerce ministry and the RoDTEP rates for priority sectors such as textiles, engineering and auto-components will be notified this week. “On other items, we are still working. We hope to submit the report by mid-February," he added.

Without disclosing the rates for the priority sectors, Pillai said for some items, the reimbursement rates will be higher than the MEIS rates, but in a large number of items, it will be lower. “MEIS has flat rates while RoDTEP factors in the embedded taxes in the inputs and products that are exported," he added.

Pillai said RoDTEP is still work in progress and initially exporters should not expect to get what they wish for because most companies don’t even maintain the data for how much tax they pay. “That creates problem for calculations. Now that companies are aware, in the next couple of years, it will get fine tuned and the rates will only go up. For the industry, whatever they get is a bonus because they are assured of getting it year after year," he added.

According to existing rules, goods and services tax (GST) and customs duties for inputs required to manufacture export products are either exempted or refunded. However, certain duties are outside the ambit of GST, and are not refunded to exporters, such as value-added tax on transportation fuel, mandi tax and duty on electricity for manufacturing.

RoDTEP will create a mechanism to reimburse such central, state and local taxes, which are not being refunded under any other mechanism. The refund would be credited to an exporter’s ledger account with the customs, and will be used to pay basic customs duty on imported goods. The credits can also be transferred to other importers. The rebate will have to be claimed as a percentage of the Freight On Board value of exports. A monitoring and audit mechanism, with an information technology-based risk management system will be put place in to physically verify the records of the exporters.

RoDTEP is based on the principle that taxes and levies borne on exported products must either be exempted or remitted to exporters. The new scheme is not like the MEIS, which was an export incentive scheme, and is considered to be in violation of multilateral trade rules and has been challenged by the US at the World Trade Organization.