Exclusive | Government may initially limit new export incentive scheme to 3 sectors

The Finance Ministry will declare a new reimbursement rate for exporters in only three sectors initially, due to a paucity of resources. A committee set up for this purpose, under the Remission of Duties or Taxes on Export Products (RoDTEP) scheme, is expected to submit its report in November.

"This year the resources are strained. In all likelihood, the scheme cannot be extended to all sectors because of that. So the committee would identify three sectors with which we can start rolling out the scheme. The report should be submitted next month," a senior government official told Moneycontrol.

The sectors for which the rates would be fixed initially might be automobiles, readymade garments and iron and steel. The Ministry of Finance had earlier set up a committee to study the ceiling rates for reimbursement of input taxes and levies to exporters under the upcoming RoDTEP scheme.

"Rates of other sectors will be fixed subsequently. It's not an easy process, it takes time. The committee has to fix input taxes and levies not just at the Central and state levels but also local level. Local levies paid on inputs by exporters will also have to be taken into consideration for reimbursement. Things like the mandi tax, or electricity cess and others like these that don't get refunded under any other schemes, have to be studied. There's also the embedded taxes that needs looking into, because this has reflect in the set-off rate," the official said.

The Finance Ministry had last year announced that the RoDTEP scheme would be operational from January 1, 2021 and would replace the Merchandise Export from India Scheme (MEIS), after the World Trade Organisation ruled that the latter was against multilateral trade norms.

Following the government's announcement last year to discontinue MEIS, the Central Board of Indirect Taxes and Customs had also formed a committee in July to work out the new rates under the RoDTEP scheme.

A fund crunch then forced the commerce ministry to cap export benefits under MEIS at Rs 2 crore for every exporter. Following the government's announcement to not continue with MEIS, a number of stakeholders had expressed concerns that it would severely impact them, as overseas sales have been contracting sharply for the past five months on weak global demand.

The commerce ministry maintained that 98 percent of exporters who claim MEIS would be unaffected by the changes.

The government had capped benefits under the MEIS scheme at Rs 9,000 crore for the April to December 2020 period. In the fiscal year 2019-20, the outgo under the MEIS was to the tune of Rs 40,000 crore.

“It is unlikely that the government would extend the MEIS scheme beyond January 2021 for certain sectors,” the official added.

The new RoDTEP scheme is likely to be more compliant with WTO norms than MEIS, as it would be based on actual volumes and not on averages like MEIS was. However, exporters have concerns that the reimbursement rates would be lesser under the RoDTEP scheme.