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G. Srinivasan

New Delhi , March 27

THE Commerce Ministry is keen on launching an omnibus export promotion scheme in the forthcoming modifications to the new Foreign Trade Policy to be unveiled on April 7, even as the continuation of the Duty Entitlement Pass Book (DEPB) scheme hangs in the balance.

Sources in the Government told Business Line here that though the DEPB scheme was designed to neutralise the incidence of duty on the inputs used in the export product, it was termed WTO-incompatible since it gave credit to deemed imports too in export production.

The Government has obtained the requisite inputs from the National Council of Applied Economic Research and Rajiv Gandhi Foundation/Economic Law Practice joint study on replacing the DEPB with a new scheme.

The sources said a draft export promotion scheme, to reimburse unrebated taxes and levies such as sales tax, octroi, fuel or power tariffs to exporters, to replace the DEPB scheme is on the anvil.

Such a scheme would not be frowned upon since "every country legally allows duties and taxes to be rebated on the basic premise that incidence of levies can be rebated to exporters."

However, as sales tax and octroi rates vary among States widely, any uniform refund scheme that neutralises these levies might be found discriminatory enough to confer unjust enrichment to exporters in States that might be charging lower sales tax or octroi.

So a lot of work is being undertaken to ensure that the export promotion scheme that is to replace DEPB rates looks fair and does not get into controversies from India's competitors, sources said.

The sources said the Ministry of Textiles, with a major stake to boost exports of textiles and clothing in the post-quota regime, has also pitched in for a suitable scheme to neutralise the total incidence of customs duty, central excise duty and other unrebated duties and taxes including cess on fuel and power that go into the manufacture of various products for exports.

The incidence of such levies when loaded on the cost of the export product leads to increased cost and only remission of levies would render the product competitive for exports.

The sources said that the Textile Ministry is also in favour of merger of DEPB and duty drawback scheme to fully neutralise the total incidence of duties incurred on the inputs of export production.

Though there is a view that duty remission on various export promotion schemes such as advance licence scheme, export promotion of capital goods, duty drawback, DEPB and special economic zone entailed a notional revenue loss of Rs 41,060.57 crore last year and another Rs 32,723 crore till end-January 2005 of the current fiscal, the Commerce Ministry is of the view that such notional loss of revenue ought to be set off and seen against the massive export earnings the country has compassed.

It said that in the current fiscal exports are poised to cross $75 billion.

When exporters are subjected to taxes retrospectively on promotion schemes such as DEPB or faced with downward revision on drawback rates in the midst of their shipment of goods, they felt that the Revenue Department has taken a myopic view, leading to a dent in the morale of exporters, sources said.

The sources said that even a flagship export boosting scheme like SEZ with its major entitlements such as duty-free import/domestic procurement of goods, exemption from Central sales tax on supplies from domestic tariff area and 100 per cent income-tax exemption in a phased manner for 10 years remains stuck in turf war between the two Ministries.

While the Commerce Ministry has proposed income-tax exemption for SEZ units and developers for a span of 20 years from the extant 10 years in order to give a decisive push to the whole concept, the Revenue Department does not want this extended that long.

However, sources said the Union Cabinet is meeting early next week to decide this once for all and the expectation is that the tax exemption available to SEZ operators and units might be between 10 and 20 years.

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