India’s Export Duty Remission Scheme to Promote Exports
India has notified rates and guidelines for the new export duty remission scheme (RoDTEP). However, lower refund rates and budget outlay compared to the previous scheme, as well as exclusion of key export sectors like pharmaceuticals and chemicals from the scope of the RoDTEP scheme have irked exporters.
On August 17, 2021, the Ministry of Commerce and Industry announced rates of tax refunds under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme for 8,555 products out of a total of 11,000 traded items for the financial year (FY) 2021-22. This scheme for zero rating of exports is aimed at boosting India’s exports and competitiveness in international markets.
The RoDTEP scheme, which launched in January 2021 with an outlay of INR 124.54 billion (US$1.68 billion), will refund the central, state, and local duties or taxes to exporters that are not benefiting from pre-existing rebates or refund schemes. For apparel exporters, a separate Rebate of State and Central Levies and Taxes (RoSCTL) Scheme has been notified by the Ministry of Textiles.
The RoDTEP export duty remission scheme replaces the previous Merchandise Export from India Scheme (MEIS), which was not considered compliant with World Trade Organization (WTO) rules. The RoDTEP scheme is based on the globally accepted principle that taxes and duties should not be exported, and that taxes and levies borne on the exported products should either be exempted or remitted to exporters.
What are the new rates under the RoDTEP scheme?
Under the RoDTEP scheme, the tax refund rates range from 0.5 percent to 4.3 percent for various export-oriented sectors, such as marine, agriculture, leather, gems and jewelry, automobiles, machinery, etc.
The RoDTEP scheme, however, has disappointed Indian exporters for several reasons. Firstly, the new rates are considerably lower than the previous MEIS rates that had ranged from two to five percent. Secondly, these rates fail to cover the embedded tax cost included in these products. Additionally, the budget outlay of the new scheme is much lesser than the old MEIS scheme.
Another major issue of contention among exporters is the exclusion of certain pivotal sectors like chemicals, steel, pharmaceuticals, etc. from the scope of the RoDTEP scheme.
Below is a list of tentative RoDTEP rates for a few items:
- Most leather products: 1.2 percent
- Fish products: 0.5 percent to 2.5 percent
- Flowers, fruits, and vegetables: 1 percent to 4 percent
- Crude oil/edible oil: 1 percent
- Instant coffee: 3 percent
- Tea: 1 percent
- Carpets: 1.2 percent to 3.5 percent
- Spirits: 2 percent to 4 percent
- Most auto parts: 0.5 percent to 1.4 percent
How does RoDTEP work?
- The currently non-refunded duties and taxes on exports at the federal, state, and local levels will be refunded.
- The indirect duties and taxes on the distribution of exported products will be refunded.
- The rebate will not be available for duties and taxes that are already exempted, remitted, or credited.
- The ceiling rates will be determined by the Committee in the Department of Revenue.
- The rebate will have to be claimed as a percentage of the Freight on Board (FoB) value of exports. The FoB indicates the onus of liability in case of goods destroyed or damaged during shipping.
- FoB Origin means the buyer agrees to the risk and takes ownership of goods once the seller ships the product.
- FoB Destination means the seller retains the risk of loss until the goods are received by the buyer.
How will the RoDTEP scheme be implemented?
This export duty remission scheme will be implemented by Customs through a simplified IT system. The rebate will be issued in the form of a transferable duty credit/ electronic scrip (e-scrip), which will be maintained in an electronic ledger by the Central Board of Indirect Taxes & Customs (CBIC).
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