The Hindu Business Line : Alternative to DEPB plagued with technical troubles

The absence of the rider to import the very inputs that have been used in the exported product makes the DEPB payments countervail-able in terms of the WTO rules.

New Delhi , Aug. 23

EVEN as the Duty Entitlement Pass Book Scheme (DEPB), an export promotion measure meant to neutralise the customs duty on the import content of the export product, is all set to cease to be effective from September 30, the alternative currently on the anvil to capture all taxes borne by exporters, bristles with technical difficulty for its scheduled launch.

Highly placed sources in the Government told Business Line here that the DEPB scheme is WTO-incompatible because it allows use of domestic inputs which are given the deemed import status to enable exporters draw credit for importing anything that is not in the negative list and things that do not go into the export production.

The DEPB credits are also freely transferable and importantly they might be utilised for payment of customs duty on any item, which is freely importable except capital goods.

The absence of the rider to import the very inputs that have been used in the exported product makes the DEPB payments countervail-able in terms of the WTO rules.

So a scheme that is to replace the DEPB but simultaneously safeguards exporters from all local levies such as electricity or fuel tariffs that are State subjects must be put in place.

But even as the Commerce Ministry is firm on its conviction that exporters should not export taxes but only products, the Revenue Department has raised some technical issues as to how could the Centre reimburse export levies such as electricity tariff primarily slapped by the State Governments.

"If under the extant DEPB scheme customs duty neutralisation is given to exporters using even domestic inputs without actually importing anything, the same logic could be extended upfront to provide relief to exporters suffering multiple taxes including State levies," the sources added.

They say that in contrast to the DEPB scheme, the duty drawback scheme provides for refund of duties of customs and central excise on basic inputs like raw materials, components, intermediates and packing material used in the manufacture of the exported item.

The drawback schedule 2005-06, effective from May 5, 2005, covers about 2,620 entries though the number of manufactured products covered by these entries would be multiple of this figure.

This is in contrast to the 2004-05 drawback schedule, which covered about 1,050 entries only.

The sources said that with more entries now being captured in the drawback schedule, the importance of the DEPB scheme has also decreased over the years as the payout of DEPB credit which amounted to Rs 11,000 crore per annum is now hovering between Rs 6,000 crore to Rs 7,000 crore.

As DEPB scheme is to be phased out by the end of next month, the alternative scheme must address other levies being subjected to by exporters.

Hence the Commerce Ministry's plea to institute a transparent mechanism to ensure reimbursement of all taxes and duties suffered by exporters including State levies, even as the Finance Ministry questions the Centre reimbursing exporters for State levies.

Asked in the absence of accommodation by the Revenue Department about reimbursing State levies by the Centre what would happen, the sources said that the existing DEPB scheme would only get extended till this problem is resolved and the Finance Ministry takes a broader perspective of boosting the country's exports.

They said that even as the deadline for freezing of all cases of negative profits and misinterpretation of the benefits of DEPB by income-tax authorities draws near by the end of this month, the exporters do not want the replacement scheme to DEPB being held over because of inter-ministerial interpretation and quibbling over small cost to the exchequer.

Exporters said that as the country has set an ambitious $92 billion export target for the current fiscal, the authorities should not fight over peripheral benefits flowing to exporters even as they are operating under wafer thin margin, primarily because of the rickety infrastructure, high transaction cost and currency gyrations of major trading partners.

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Alternative to DEPB plagued with technical troubles