The government will likely raise the allocation for its flagship export tax refund scheme from the budgetted Rs 13,000 crore for FY22, as the current outlay is expected to fall way short of the amount required to implement recommendations of the GK Pillai panel, an official source told FE.
While the revenue department will take a final call on the hike, sources said total allocation for FY22 may finally jump to about Rs 25,000-30,000 crore.
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The Pillai committee was tasked with the job of recommending rates for the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme. It is supposed to reimburse various embedded levies (not subsumed by the GST) paid on inputs consumed in exports. The suggestions are being vetted by both the revenue and commerce departments. The RoDTEP rates are expected to be announced in two weeks.
However, the RoDTEP outlay is expected to be much lower than that for the Merchandise Exports from India Scheme (MEIS), which was replaced by this scheme. The government has approved Rs 39,097 crore for MEIS for FY20. Of course, both the schemes are not strictly comparable. While RoDTEP is an export levy refund scheme, MEIS was typically an incentive programme.
In March, Pillai, who was formerly commerce secretary, had told FE that “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…,” he had added.
Since exporters themselves have no fool-proof 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 had said, but added the scheme could still take 2-3 years to stabilise.
Sections of the exporters’ community, however, apprehend that the government could reduce the RoDTEP rates or the coverage of the scheme to limit the cost to the exchequer. Any such move, they have warned, will delay a recovery in exports, which have started to surge from March after maintaining 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.
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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.
Merchandise exports surged a record 196% year-on-year in April, driven mainly by a favourable base. However, even in absolute term, exports in April stood at $30.6 billion, up almost 18% from the same month in 2019 (before the pandemic struck), mainly on the back of improved order flow.
The government has now set an ambitious target of $400 billion for FY22, against $291 billion last fiscal. For this to be achieved, the government should try and address the liquidity woes of exporters, who have been awaiting the release of tens of thousands of crores under the MEIS, exporters have said.
For its part, the government, faced with a resource crunch and the urgent requirement of boosting healthcare spending to fight Covid-19, has already started processing the MEIS benefits, a senior official recently said.
