EXIM Policy

A fresh package of Rs 500 crore in the form of interest subvention has been announced to compensate for the reduction in their profits.

Under the scheme, the exporters are given two per cent relief in pre-shipment and post-shipment credit in sectors such as leather and leather products, marine products, handicrafts, textiles and carpets.

"The measures will ensure mitigation of the effect of the rupee appreciation across the export sectors, make them internationally competitive and will also enable them achieve export targets," the officials said.

The budget is also likely to see a provision for interest subvention to all scheduled commercial banks in respect of the rupee export credit.

The government has already announced Rs 300 crore under the interest subvention scheme for exporters.

The commerce ministry had denied the announcement was made unilaterally, as suggested by the finance ministry. "No Foreign Trade Policy can be announced without the approval of the Prime Minister. The Prime Minister had approved the service tax waiver two days before the announcement," a commerce ministry official said. The issue was also discussed with the finance ministry several times, the official said, adding, since Parliament session was on, a copy of the policy was placed before the speaker before it was announced on April 19.

Asked whether his ministry was against the service tax exemption, finance minister P Chidambaram said, "I do not want to comment on the issue."

After the announcement, sources said the finance and commerce ministries were likely to hold further talks before taking a final decision. The decision to provide service tax exemption to exports was made without taking into account the revenue implications.

In a memorandum to the Directorate-General of Foreign Trade, B S Meena, submitted on Thursday, CII trade policy committee chairman Sanjay Budhia called for improving export infrastructure to boost exports from India.

The rates have been revised in accordance with the changes in prices of inputs, duties etc. The rates have been revised upwards on most of 84 products in the relevant schedule.

The drawback rates have been determined on the basis of certain broad parameters including the prevailing prices of inputs, standard input/output norms (SION) published by DGFT, share of imports in the total consumption of inputs and the applied rates of duty, an official release said.

Significantly, the new Drawback Schedule also takes into account the incidence of service tax paid on taxable services which are used as input services in the manufacturing or processing of export goods, the release added. For this purpose, the Customs and Central Excise Duties Drawback Rules, 1995 have been suitably amended.

The Drawback Schedule includes 84 new items. These include cotton bags, leather caps, aluminium artware, suit cases & handbags of plastics, tractor parts, compressors, table tennis tables and various other sports equipment/accessories.

• The rates have been revised in accordance with the changes in prices of inputs, duties etc
  
• Eighty-four new items in the Drawback Schedule include cotton bags, leather caps, etc
  
• In the case of silk, the drawback rate for higher quality silk fabrics has been increased from 7.5%
  

The drawback rates in the recent notification have been increased from 7.5% to 7.8% for man-made fibre garments, 6.8% to 7.2% for blended garments and 6% to 6.7% for cotton garments.

Garment exporters have thanked the government for increasing the drawback rates, but they feel the increase is too little to provide any comfort.

"The move is definitely in the positive direction, but we hoped for a drawback hike of more than 2% . The current hike just amounts to an increase of over 1%," Garment Exporters Association secretary general Pritam Goel told FE.

The exporters were expecting a higher hike in the drawback rates as the various duty changes and the incidence of service tax were to be included in the revised rates.

The exporters have suggested that the government should have a re-look at the new drawback rates.

"If the government really wishes to encourage the garment sector and provide employment to unemployed rural youth, it must give an enhanced rate of refund to the industry," Apparel Export Promotion Council chairman Vijay Aggrawal said.

He is surprised at the low increase rate as various studies by government agencies have clearly established that transaction costs of Indian exporters especially in the garment sector are very high.

Where EOU exports goods under shipping bill procedure, the existing procedure required the unit to get a shipping bill number by visiting the jurisdictional Customs office. The procedure has now been simplified and the Central Board of Excise and Customs has permitted the units to use shipping bill with running serial number, beginning from the first day of the financial year.

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In order to redress the reported problems regarding delays in declaring a warehousing station, a time bound requirement has now been put in place for declaring warehousing stations. Under the new procedure, a site verification report has to be given within 7 days by the jurisdictional superintendent to his superiors. Under the new guidelines, the entire procedure of verification will have to be completed in less than 30 days.

The CBEC has already notified permission to exporters to supply spares and components to the original buyer at any time within the warranty period of the exported articles. Earlier, the requirement was that such spares be supplied along with the export articles.

Many Lead speakers on Indian Foreign Policy including Members of Parliament, Academecians Scholors & Experts are participating in The Seminar.

• DEPB 11,535
  
• Advance licence 10,134
  
• Duty drawback 3,057
  
• EPCG scheme 3,399
  
• SEZs 1,300
  
• EOUs/STPs 9,400
  
• Other schemes 879
  
• Total 39,704

• Neutralising tax element on export products is globally accepted
  
• Multiple schemes cause administrative difficulties and are liable to misuse
  
• Only three must remain- SEZ/EOU, Advance Licensing and Drawback

The exporter won't be allowed multiple benefits on the same quantum of export, a senior finance ministry official told FE, adding that a mechanism for "correct assessment of the export earnings" would be instituted.

At present, the system is such that a single exporter can simultaneously avail of half a dozen sops or rewards. Including the notional revenue foregone, these schemes are estimated to cost the exchequer a whopping Rs 50,000 crore, which, according to the finance ministry, could be reduced drastically.

Finance minister P Chidambaram would also like to undertake a major rationalisation of the export schemes. He wants the export schemes and incentives to be structured afresh. Many schemes could be scrapped. The aim is to bring transparency to the whole system through a cost-benefit exercise.

As a prelude to the exercise, the Cabinet secretariat on Monday held a meeting of the secretaries concerned -- KM Chandrasekhar (revenue), Adarsh Kishore (expenditure), SN Menon (commerce) and Ashok Jha (economic affairs).

"The idea is to clearly prescribe the benefit," said the official. What is being attempted now is to examine whether a figure (as percentage of net forex earned) can be put as maximum allowable benefit for exporters. Stating that the rationalisation exercise could be a long-drawn affair, the official said a beginning would certainly be made in the Budget. "We are approaching the issue very seriously," he said.

At present, the duty remission schemes for exporters allegedly allow "double benefits". For example, the duty drawback schemes for raw materials, and the duty relief on capital goods under the EPCG scheme can be availed of over and above each other. The export obligations under the two schemes are discharged separately, but the same quantum of exports would qualify for fulfilling both the obligations. The same exporter can also get rewards under the Target Plus scheme for defined incremental exports.

According to the official, for all other schemes -- duty drawback, Target Plus etc -- the committee would make specific proposals whether the benefits thereof to exporters would be countervailable by the importing country. The idea was to ensure that only schemes with long-term viability be retained.

A TRANSITION period of at least six months must be granted to the exporting community, whenever it is decided to put in place the merged scheme in addition to the DEPB (Duty Entitlement Pass Book) scheme.

This is necessary so that exporters can incorporate the changes effected under the new scheme (said to come into effect from January 1, 2006), while negotiating their contracts with overseas buyers.

The above has been recommended by the special task force set up under the reconstituted Board of Trade, headed by Mr Rakesh Shah, Chairman of the Engineering Export Promotion Council (EEPC), to study the impact of the various export schemes on the country's export competitiveness.

Mr Rakesh Shah told Business Line that though the DEPB Scheme was meant to only neutralise the duty incidence, it also addresses partly the high transaction costs, which exporters had to bear. He felt the proposed new scheme must also address the disability factors faced by exporters within the country.

Describing DEPB as most popular scheme among exporters, Mr Shah said it should not be replaced by another scheme, but rather, "it should be further strengthened to support exporters, at least until there was sufficient reform in the domestic tax structure which can create the path for a more efficient replacement of DEPB."

Elaborating on the customs checks, he said while verifying DEPB, it had been found that Customs once again went through the entire process of assessment such as checking with regard to admissibility of DEPB, correctness of the f.o.b. value declared on the shipping bills and so on, already completed before shipments. He suggested that the customs should restrict themselves to verifying only the genuineness of the shipping bill, based on which the instrument has been issued. He felt the verification process should be completed within three weeks since submission of papers.

Mr Shah said if exports had to register a quantum jump, greater co-operation between customs and central excise agencies was a must. He suggested that revenue not collectible for imports under duty exemption schemes might also be considered towards fulfilment of targets, along with the actual duty collected. This may bring about a sea change in the mindset of exporters about foreign trade, he added

The DGFT, K.T. Chacko, said that the online DEPB credit would be given to all exports executed from October 2005.

DEPB credit in a year is in the Rs 5,000-6,000 crore bracket and the expeditious clearance of DEPB credit online would vastly relieve exporters from running from pillar to post.Till now, after shipment of consignment, exporters had to send shipping bills to the DGFT, which would scrutinise the same and issue a certificate.

This certificate had to be forwarded to the Revenue Department for release of DEPB credit; this elaborate exercise entailed time and contributed to transaction cost to trade and industry. | Read more Finance news. |

Chacko said that the online credit through electronic data interchange (EDI) would be implemented in all 23 ports and Customs houses as of now, and subsequently this would be extended to other areas too.

On the delay in the introduction of a new scheme to replace the DEPB scheme, the DGFT said that as per the suggestion of the Prime Minister's Economic Advisory Council, both the DEPB replacement scheme and the issue of "negative profit" exemption exercising the exporters have been resolved.

The Council has directed the Revenue Department and the Planning Commission to work out the modalities for the new incentive scheme, which would be ready in a couple of months, he added.

The Commerce Department is in favour of reimbursing taxes on electricity, petroleum products, entry tax, and Central sales tax incurred on inputs in export production, while the Revenue Department is reluctant to pick up the tab on these charges, as they are State levies. Hence, the issue was referred to the Advisory Council.

On the issue of "negative profit", the issue was what constituted negative profits and whether an assessee was entitled to claim exemption under Section 80 HHC of the Income-Tax Act in respect of export incentives when the export business, excluding export incentives, reflected a loss.

The Advisory Council, headed by Dr C. Rangarajan, favoured the exporters' demand on grant of "negative profit" exemption.

The exporting community has suggested an explanation under Section 80HHC of the I-T Act that related to profits directly derived from exports be amended on a retrospective basis from 1992-93 so that the tax authorities do not reopen past cases and harass exporters.