Remission of duties or taxes on export product

Recently, government launched a new scheme called Remission of Duties and Taxes on Export Product (RoDTEP).

• Remission of Duties and Taxes on Export Product (RoDTEP): RoDTEP is a Rs 50,000-crore exports programme which is supposed to replace Merchandise Exports From India Scheme (MEIS).
• Operation delayed: The operation of RoDTEP was recently delayed. MEIS would remain in force till March 31, 2020.
  • RoDTEP was first set to roll-out from 1^st January 2020, but recently its roll-out was delayed to next fiscal.
  • This delay was done at the behest of exporters’ request to grant them more time to prepare for a transition from MEIS to the new scheme, given the operational challenges.
  • The next foreign trade policy will contain the broad contours of RoDTEP.

MEIS was WTO-incompatible

• MEIS was introduced in the Foreign Trade Policy (FTP) 2015-20 w.e.f. 1st April 2015.
• Objective: Its objective was to offset infrastructural inefficiencies and associated costs involved in exporting goods which are manufactured in India, including products manufactured by the MSME Sector.
• WTO-incompatible: World Trade Organisation (WTO) panel had determined that India’s export subsidies are inconsistent with WTO requirements.
  • The ruling of WTO’s Disputes Settlement Body (DSB) in favour of US against India’s export “subsidies” is still pending.
  • US claims that India offers illegal export subsidies and thousands of Indian companies benefit from it.
• India’s argument: India rejects claims made by the US
  • The entire allocation or potential revenue forgone on account of various such schemes (including MEIS) doesn’t qualify as export subsidies.
  • They are meant to only soften the blow of costly input imports that exporters have been forced to bear due to a complicated tax structure.
  • Exports are in sync with the best global practices.

RoDTEP scheme

• Reimburse input taxes and duties: RoDTEP is expected to adequately incentivize exporters by reducing duties paid on exports and will initiate the refund of various taxes to exporters.
• WTO compliant: The new scheme is supposed to reimburse all taxes and duties paid on inputs consumed in exports in sync with the WTO norms.
  • The MEIS, exporters have persistently complained, doesn’t offset all the taxes, so the new scheme will be beneficial to them when it’s implemented.
• Automatic refund-route: The new scheme will have a fully automated route for Input Tax Credit (ITC) in the GST to help increase exports in India.
• Avoid double taxation: ITC is provided to set off tax paid on the purchase of raw materials, consumables, goods or services that were used in the manufacturing of goods or services. This helps in avoiding double taxation and the cascading effect of taxes
• Attempt to reverse export fall: It is expected to adequately incentivize exporters by reducing duties paid on exports and will initiate the refund of various taxes to exporters. Measures in the new scheme include:
  • Easier priority-sector lending norms for exports
  • Greater insurance cover under ECGC
  • Lower premium for MSMEs to avail of such cover
• Costly to the government: Since potential revenue forgone in the current MEIS is around Rs 40,000 crore a year, RoDTEP is expected to cost the government an additional Rs 10,000 crore annually.

Additional benefits of MEIS and RoDTEP

• Both MEIS and RoDTEP seek to free up working capital of exporters.
• An electronic refund module will be set up to automatically to refund input tax credits.
• The move will increase bank credit to exporters under the Export Credit Insurance Scheme.
• Exporters will receive a higher insurance cover from banks that offer capital loans