Exporters want Flexibility in Fixing Rates under New RoDTEP Duty Refund Scheme

Call for calculating rates at broader four-digit classification level instead of eight-digit

Exporters have asked the government to allow more flexible fixation of refund rates under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, that is scheduled to replace the popular Merchandise Export from India Scheme (MEIS) at the end of December 2020, so that certain sectors are not worse off after the switch.

“Many exporters have proposed to the government to allow classification of items more broadly at the four-digit HS level instead of eight digits for fixing the rates for refund of taxes on inputs under the RoDTEP scheme. The option for fixing a slightly higher refund rate through broad classification of product groups is needed as several products could be at a disadvantage once the popular MEIS scheme is withdrawn at the year-end and replaced with RoDTEP,” a government official told BusinessLine.

HS (Harmonised System) code description categorises goods into various commodity groups, which is accepted and implemented by most countries. The higher the digits, more detailed is the classification. At the two-digit level, only the broad chapter of the good is identified, the next two digits denote the heading or the specific category within the chapter, while the additional digits denote finer sub-categories.

“If you are fixing the refund rates at eight digit level, there is not much flexibility available for you. The flexibility increases at the four digit level. Assuming at eight digits you have 200 products. So, if you want to help the industry, you can take the best rate of the 200 products and fix at the 4 digit rate. That’s the flexibility,” a Delhi-based exporter explained.

Moreover, a narrower classification at eight-digit HS level, will also take a much longer time and it may not be possible to fix rates for all items by the stipulated time-line of 2020-end, the exporter added.

India is replacing the MEIS scheme, under which exporters get duty credits at 2 per cent, 3 per cent and 5 per cent of the export value depending on the product and the target country, with the RoDTEP scheme, as it has been ruled as being non-compliant with WTO norms.

Input taxes key

Since the RoDTEP scheme will be strictly based on the input taxes paid by various sectors, including on fuel and electricity, the rates of refund for sectors where the incidence of such taxes is low, will be much less than what these sectors enjoy under the MEIS scheme.

“Sectors like textiles, which do not have incidence of taxes on fuel, will have lower rates under RoDTEP than say the engineering goods sector, especially steel and ferro alloy, where the incidence of such taxes is higher,” said Ajay Sahai, Director General, FIEO.

The Centre right now is collecting from various export sectors specific data such as Central and State taxes paid on fuel and electricity, stamp duty and embedded taxes in the transport sector to work out RoDTEP rates.