Govt looks to limit RoDTEP spends

Amiti Sen New Delhi | Updated on May 12, 2021

Capping refunds, limiting eligible sectors could ease budget constraints

The Centre is examining options such as putting a cap on the refund amount for individual exporters and limiting the number of items eligible for refunds to stay within the limited budget sanctioned for the Remission of Duties and Taxes on Export Products (RoDTEP) scheme implemented from January 1 2021, according to sources.

Exporters, however, want the RoDTEP rates, recommended by the GK Pillai committee appointed by the government last year, to be implemented fully for all relevant sectors.

“The Revenue Department and the Commerce Department are finding it difficult to take a final call on RoDTEP rates for exporters who are waiting for it for over four months. This is because there is a big gap between the outlay required for rates proposed by the Pillai Committee and the available money. The government is weighing options such as putting a cap on the reimbursements for units and limiting the number of eligible sectors, but these are not popular decisions with exporters,” a source tracking the matter told BusinessLine.

The RoDTEP was implemented this year simultaneously with the withdrawal of the popular Merchandise Export from India Scheme (MEIS) for exporters following a WTO verdict against the latter. Under the MEIS, a number of sectors would get refunds ranging from 2 per cent to 4 per cent of the value of the exported good but this calculation was not done strictly on the basis of input taxes paid and thus was considered an export sop that the WTO did not allow. On the other hand, the RoDTEP rates proposed by the Pillai Committee have been calculated based on all input taxes paid by exporters, including embedded taxes, that have not been refunded under any other scheme, and can be transparently traced. Therefore it poses less risk of challenge at the WTO.

Large exporters to be hit

“While the government understands that the Pillai Committee recommendations for input tax refund are precise, the budgeted amount, around ₹13,000 crore annually, is not enough for that. There is therefore indecision about how the scheme should be pruned as that would genuinely hurt exporters,” the source said.

Placing a cap on the refunds for individual exporters or units would mean that the larger ones would be at the receiving end as their entitlements would be higher and they would end up paying much of the input taxes on their exports from their own pockets.

“The government is favourably considering a cap on the refunded RoDTEP amount as it would not hurt MSME exporters but large exporters may be deeply hit,” the source said.

The Finance Ministry had initially projected that the revenue foregone towards the scheme would be ₹50,000 crore annually but then revised it to ₹13,000 crore. However, it may be ready now to increase it to ₹16,000 crore..

“As the RoDTEP scheme is WTO compatible, whatever rates have been proposed by the Pillai Committee should be implemented. In any case, there aren’t many incentives to support exporters. It has to be understood that it is not a subsidy,” said Ajay Sahai, Director General, Federation of Indian Export Organisations (FIEO).

Published on May 12, 2021

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