Hit to exports: Exporters fear low RoDTEP refunds

As the government prepares to notify refund rates under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, exporters fear the rates may turn out to be lower than recommended by a technical committee. Inadequate remission of taxes would result in residual embedded taxes in export products and hit Indian industry’s competitiveness in world markets at a time shipments are witnessing a nascent recovery, they warn.

The government has budgeted only Rs 13,000 crore for the RoDTEP scheme for FY22, which is way below the scheme’s initial estimated annual cost of Rs 50,000 crore. Also, it’s only a third of the Rs 39,097 crore the government approved for exporters in FY20 under the Merchandise Exports from India Scheme (MEIS) for many sectors.

The GK Pillai committee, tasked with recommending the RoDTEP rates, will submit its report to the government on Monday. The scheme is supposed to reimburse various embedded levies (not subsumed by GST) paid on inputs consumed in exports.

Pillai told FE: “RoDTEP is an entirely new scheme meant for remission of taxes embedded in exports. It cannot be compared with the MEIS, which was an incentive scheme, where the benefits could have been extended in an arbitrary manner.”

Asked about the gap between the budget outlay and exporters’ estimate of the refunds required to offset all taxes, Pillai, who was formerly commerce secretary, said ‘low budget outlay’ was unlikely to be a constraint for meaningful implementation of the scheme. “The finance minister has already indicated that enough funds would be made available… Also, much of the amounts (to be reimbursed to exporters) could be in the form of drawbacks (which will get reflected in the net tax income of the government, rather than budgetary outlay),” he noted.

Since exporters themselves have no foolproof data or even complete knowledge of all taxes embedded in the export products, the committee has had a difficult task of determining the RoDTEP rates for as many as 8,000 tariff lines. The exercise has been done in a manner as comprehensive as possible in keeping with principle that taxes are not meant to be exported, Pillai said, but added the scheme could still take 2-3 years to stabilise.

Sections of the exporters’ community, however, fear the government could slash the RoDTEP rates to limit the cost to the exchequer. Any such move will delay a recovery in exports, which have maintained a roller-coaster ride in the wake of the Covid-19 outbreak. The government, they said, should keep the RoDTEP outgo open-ended and not curtail the rates to limit refunds to a certain annual budgetary outlay, if the idea is to keep exports truly zero-rated in sync with global best practices.

The RoDTEP replaced the ‘WTO-incompatible’ MEIS from January 2021 but the refund rates are yet to be declared. Under MEIS, most exporters were getting scrips amounting to 2-5% of the freight-on-board value of the shipment.

Indian exporters are already struggling with volatility in demand from many key markets like the US and EU in the aftermath of the pandemic; the need for a higher-than-usual degree of market diversification is another challenge.

In a letter to finance minister Nirmala Sitharaman on February 25, the Aluminium Association of India said even the MEIS reward rate of 2% for aluminium exports won’t “provide ample cushion to remain competitive against current bearish market condition”.

When contacted, Ajay Sahai, director-general and chief executive at the Federation of Indian Export Organisations (FIEO), said: “Our position is that the RoDTEP rates should not be lower than what the Pillai committee has recommended.”

Suranjan Gupta, executive director at engineering exporters’ body EEPC India, expected the rates to be notified soon. Both Sahai and Gupta, however, stressed that MEIS and RoDTEP can’t be equated, as the earlier scheme was viewed by critics as primarily an export subsidy programme, while the new one is fully consistent with the WTO norms. Nevertheless, some exporters have maintained that even the MEIS didn’t compensate exporters for various structural bottlenecks.

As for the RoDTEP scheme, FIEO president Sharad Kumar Saraf recently said it was impossible to offset the blow of all the embedded levies within an annual outlay of just Rs 13,000 crore (about $1.8 billion) when exports were typically above $300 billion a year. Also, since these are mere reimbursements of various taxes that exporters are not supposed to pay in the first place, these are not “benefits” or “incentives” as touted to be.

Also, exporters have asked the government to notify the RoDTEP rates at the earliest. Since exporters typically factor in the “incentives” they get under key schemes while firming up deals, the absence of clarity on RoDTEP rates is hurting their prospects, they have said.

The Pillai committee was set up only in late July last year to undertake a humongous exercise of recommending RoDTEP rates for thousands of products.

The scheme is proposed to cover levies that are not subsumed by the GST (petroleum and electricity are still outside the GST ambit, while other imposts like mandi tax, stamp duty, embedded central GST and compensation cess, etc, remain unrebated).

According to an FIEO estimate, after a Covid-induced contraction this fiscal, India’s exports could rise to $340-350 billion in FY22 as the advanced economies are expected to recover from the shock of the pandemic. However, much depends on how the government implements the RoDTEP and remove other irritants, exporters say. Exports are expected to drop by about 8%, year on year, to $290 billion in FY21.