FM gives final approval to new drawback scheme: Sources

Government is likely to unveil tomorrow, a new drawback scheme to replace the tax refund DEPB for exporters, which is ending on September 30, reports CNBC-TV18's Siddharth Zarabi.

Yesterday, the new drawback scheme was proposed by the Saumitra Chaudhuri panel. It was been put up in the form of a formal proposal to the finance minister.
Yesterday, the commerce minister and finance minister had a last minute meeting for some final touches to the new scheme. Sources in North Block at the finance ministry informed that the finance minister has provided final approval to the new drawback scheme.
This announcement was already expected, but was perhaps delayed to some extent. With September 30 being the day, only 15 days are left for the new scheme to come into effect.
The Saumitra Chaudhuri panel extended the coverage of the new scheme to all the items, which were a part of the earlier assumption based DEPB schemes. In terms of the rates, the Chaudhuri panel has recommended between 3-6% (3% at the lower end and 6% at the higher end for some items).
The beneficiaries of the existing DEPB scheme will now have to switch over to the new reality. With the existing DEPB benefit, 60% of the benefits were garnered by the engineering sector and chemicals sector. Some of the hit is likely on that front.
The government spends annually about Rs 8,500 crore for reimbursing exporters on the taxes paid on import equivalent content of export products, under the Duty Entitlement Pass Book (DEPB) scheme. The main beneficiarie s are engineering, automobile and chemicals sectors. The auto components sector will also have to live with significant changes in terms of lower drawback than what was available in the earlier scheme.
The finance ministry will formally announces this detailed scheme tomorrow at 12:30pm. Both the finance secretary RS Gujral and the Central Board of Excise and Customs (CBEC) chairman S Dutt Majumdar will announce the contours of this new scheme.
The existing DEPB scheme was faulty in some ways, as it was assumption based. Any relevant authority could never have been in a position to decide on how many of the components were actually imported and what was the value addition in a finished component like a TV set. A model assumption was used on the basis of which the DEPB benefits were availed by the companies. It was simply impossible to monitor such an assumption based scheme. In the DEPB, the other element was excise and customs. The new drawback scheme would be a modern scheme, which will reflect change in industrial realities. However, industry will have to learn to live with lower rates.
It was learnt from the finance ministry sources that as and when this scheme comes into effect, it will take into account future changes.
It is popular among the exporters due to its attractive rates and flexibility which are not available in the other refund mechanism - Duty Drawback.
The exporters have been building pressure that they should be allowed similar benefits even if the nomenclature of the DEPB is changed.
According to sources, the Finance Ministry has worked out a compromise between the attractive DEPB and not-so-attractive Duty Drawback.
The details of the scheme would be announced by Finance Secretary RS Gujral along with senior officials of the Central Board of Excise and Customs (CBEC).
Though exports have shown a remarkable performance, growing by 54.2% between April-August 2011 to USD 134.5 billion, there are concerns that the momentum may not be sustained in the wake of increasing economic problems in the US and Europe.
It was learnt from the finance ministry sources that as and when this scheme comes into effect, it will take into account future changes. The finance ministry is prepared to address any concerns that industry may come up with after the data put by industry association. (With inputs from PTI) Also watch the accompanying video for more...