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Help On Way for DEPB-Deprived Exporters

One-year transitional duty drawback scheme to replace DEPB, but exporters fear scheme may add to uncertainty

The government is likely to offer a lucrative one-year stop-gap duty reimbursement scheme, replacing a popular tax break for exporters that ends next month. The move would bring relief to big industrial houses such as Reliance Industries, Bharat Forge, TVS Suzuki and Bajaj Auto. An experts panel, set up by the finance ministry to rework the duty drawback scheme for all export products, including those covered under the popular duty entitlement passbook scheme (DEPB),is likely to recommend a middle path and provide a one year transition regime. A transitional duty drawback scheme will replace DEPB, a person privy to the development said. DEPB, an export promotion scheme similar to the duty drawback scheme, cost the exchequer.8,520 crore last fiscal. Large engineering and chemical exporters cornered over 60% of this amount. The finance ministry is determined to end this scheme on September 30,the new deadline set after intense lobbying by exporters forced the government to defer its June 30 expiry. The ministry, however, is also wary of upsetting exports in an uncertain global environment. Big exporters, who mostly avail of tax breaks under DEPB, are resisting its phase out because reimbursements under it are higher than that under the duty drawback scheme, which is a similar scheme for exporters. The benefit under transitional scheme will be higher than regular drawback, the person said. The recommendation of the panel, which is headed by Planning Commission member Saumitra Choudhury, is expected shortly. Indias exports, which were up 54% in April-July over the year ago period, are yet to feel the heat from the global slowdown. But the commerce ministry expects a sharp deceleration in the months ahead. The expected year-long transitional scheme will expire before the rollout of the goods and services tax (GST) regime, under which all exports will be zero rated, or all taxes on inputs used in goods exported are reimbursed. If GST is not implemented by its targeted date of April 1 next year, the transitional scheme will be replaced by the normal duty drawback scheme. The new drawback schedule is expected to have about 4,100 items, as against 3,200 at present. Exporters are not enthused about any transition scheme as they see it adding to uncertainty. This will not send the right signal as exporters will not be sure about rates to quote, especially in sectors where the delivery system is longer, Fieo director-general Ajay Sahai said. DEPB is considered lucrative by exporters as it offers duty-free scrips, or entitlements that can be used to pay import duties, based on the value of goods exported. Under the DEPB scheme, exporters receive duty-free scrips, or entitlements, which they can use to pay import duties. The scrips are based on the value of goods exported and can be traded freely. The scrips are provided on the assumption that all inputs are imported, but in practice exporters are allowed to use up to 50% domestic inputs under the scheme. They are also allowed to claim credit for the excise duty they pay on these domestic inputs. This implies that under DEPB, exporters get credit for taxes they do not actually pay. In contrast, the drawback scheme neutralises customs duty and excise duty component on the inputs used for products that are exported at fixed rates that are revised yearly on the basis of changes in the indirect taxes structure in the annual budget.

Economic Times, New Delhi, 01-09-2011