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After delaying by 8 months, the government of India has notified the rates and norms for the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme. Accordingly, the Commerce Ministry released details of the RoDTEP scheme to help exporters to stay competitive and increase exports at a time when there is an increase in demand from developed economies.
RoDTEP Scheme together with the Rebate of State and Central Levies and Taxes (RoSCTL) scheme, which focuses on textiles, is the latest attempt to intervene in the export market and increase India’s exports’ competitiveness. While these schemes are better structured than previous efforts, these schemes have certain flaws in both conception and implementation.
About RoDTEP Scheme
- Launched by: Ministry of Commerce & Industry
- Which scheme is it replacing? The RoDTEP scheme is replacing the earlier Merchandise and Services Export Incentive Schemes (MEIS and SEIS) that were in violation of WTO norms.
- Aim: To reimburse all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.
- The refund under the scheme shall not be available in respect of duties and taxes already exempted or remitted or credited.
- The scheme seeks to rebate sales tax, excise duty, electricity duty, stamp duty etc.
- The rebate will be in the form of a transferable duty credit/electronic scrip (e-scrip) that will be maintained in an electronic ledger by the Customs.
Key Features of the RoDTEP Scheme
- Coverage: The scheme covers over 8,555 tariff products, accounting for about 75% of traded items and 65% of India’s exports.
- Rates: The tax refund rates will vary between 0.5% and 4.3% of the export value of goods.
- The lowest rate is offered on items like chocolates, toffees and sugar confectionery.
- Yarns and fibres have been granted the highest rate.
- Sectors Included: The scheme covers sectors such as marine, agriculture, leather, gems and jewellery automobile, plastics, textiles, electronics among others.
- Sectors Excluded: Pharmaceutical, steel and chemicals have been kept out of the purview of the scheme. Products manufactured at export-oriented units and special economic zones have also been excluded from the scheme for the time being.
|Read more: Govt notifies RoDTEP rates, guidelines|
How does the RoDTEP scheme work?
- The refund for the taxes paid by exporters under the scheme will be credited to an exporter’s ledger account held with customs.
- This refunded amount can be used by exporters to pay basic custom duties on imported goods.
- These credits can also be transferred to other importers.
- A monitoring and audit mechanism has been put in place to physically verify the records.
|Read more: How can the new rebate scheme help exporters?|
Need for RoDTEP Scheme
In 2018, the US challenged five Indian export subsidy schemes in the World Trade Organisation (WTO). This includes schemes such as
- Merchandise Export from India Scheme (MEIS),
- Special Economic Zone (SEZ),
- Export Oriented Units (EOU)
- Electronics Hardware Technology Parks (EHTP)
- Export Promotion Capital Goods (EPCG)
In October 2019, WTO ruled that these schemes are inconsistent with the WTO agreements for providing prohibited export subsidies. The WTO panel also recommended that the Indian government should withdraw these schemes.
In response, the Indian government came up with the RoDTEP scheme, which is WTO-compliant.
Advantages of the RoDTEP scheme
- Make Indian Industries competitive: The scheme would lead to the cost competitiveness of exported products in international markets and better employment opportunities in export-oriented manufacturing industries.
- Fulfils India’s commitments to the World Trade Organization: The government had to go in for the RoDTEP Scheme to replace the MEIS. Because, the tax rebates are compliant with India’s commitments to the World Trade Organisation, while export incentives are not.
- Covers the uncovered aspects of GST:
- Exporters are already able to seek refunds for their GST payments.
- The idea behind the RoDTEP and related schemes is that the taxes exporters pay on the fuel required for freight, electricity consumption, or for agricultural mandis, should also be refunded.
- So, it is expected to significantly impact India’s competitiveness, trade flows, and export numbers over the next 5-10 years.
- Par with International Standards: Indian exporters will be able to meet the international standards for exports as affordable testing and certification will be made available to exporters within the country instead of relying on international organisations. This would increase the economy for the country and the working capital for the enterprise.
- Automated Tax Assessment: Under the Scheme, tax assessment is set to become fully automatic for exporters. So, the businesses will get access to their refunds via an automatic refund route.
Challenges with the RoDTEP scheme
- Issues with low rates– Exporters are unsatisfied with the amount of relief offered and argue that the low rates under the scheme will have little benefits compared to the MEIS.
- Issues with exemption– Exporters in the sector like engineering and electronics, which use iron and steel as inputs, are unhappy because they are unable to claim the benefits for their inputs since iron and steel has been exempted from the scheme.
- Not sustainable: Instead of simplifying and unifying the tax system, the scheme adds complexity to the tax system. The addition of greater complexity to the tax and rebate system is not a sustainable way forward.
- Multiple rates are difficult to manage and administer: The intervention of the RoDTEP scheme is granular in nature — 8,555 products— with reimbursement rates that vary from 0.3 per cent to 4.3 per cent, in addition to various per unit rebates as well, will be difficult to manage and administer. For reasons such as,
- Will each of these 8,555 products have its administered rebate rate altered when the respective industry’s cost structure changes?
- Does the government have the capacity to make these changes swift, transparent, and justifiable?
Suggestions to improve India’s export competitiveness
- The government must educate the exporters that the MEIS was a direct export subsidy and a violation of WTO. So the government cannot continue that scheme. The government has to inform exporters that the RoDTEP is a remission of taxes/duties/levied that are currently not refunded through other schemes, and the scheme is WTO Compliant.
- Timely funding: In the past, export incentive schemes and even the standard GST refund have run aground because the government has failed to pay back exporters on time. So, the government has to ensure speedier refunds under the RoDTEP Scheme for better export competitiveness.
- Focus on sustainability and simplicity, not complexity: Export competitiveness should be addressed through both improving the regulatory and business environment in India. Further, India can move towards simplification and unification of the tax system.
- Expand the ambit of GST: If the fuel taxes, electricity duties, real estate and so on were part of the GST Regime, the exporters could claim swift refunds on them through the existing mechanisms. This will create a condition that the government does not need any additional scheme/ resource/ infrastructure etc.