Ministry for including state-level taxes in duty drawback scheme

The textile ministry has recommended inclusion of state-level taxes paid by exporters to be part of the duty drawback (DDB) scheme, which allows firms to claim back taxes paid while producing the exported item.

At present, only taxes levied by the Centre, like Customs and excise duties, are reimbursed under the DDB scheme.

“The inclusion of state-level taxes in the scheme will further ensure that taxes are not exported overseas rendering Indian exports more competitive,” said Rita Menon, secretary, ministry of textiles.

The ministry, after studying the impact of state-level taxes on final product price, suggested increasing DDB rates for state-level taxes by 5-7 percentage points.

“We know at this time the government will find it difficult to give more fiscal stimulus to textile exports, but we will try our best to support exporters,” Menon added.

Textile exports, which contribute around 14 per cent to the country’s export earnings according to ministry data, has seen a 30 per cent contraction last year due to the global economic downturn.

DDB is an export promotion scheme, which allows exporters to reimburse Customs and excise duties so that taxes are not exported. The scheme has the provision for reimbursing a certain percentage of the free on board (FoB) price, which is the price of the exported product before freight, insurance and other miscellaneous costs.

The scheme has caps placed on the amount to be reimbursed for different export products in order to neutralise the pricing system.

In the previous financial year, the government, in a bid to contain the adverse effects of global recession and slackening demand of exports, had introduced a 4 per cent cut in the central value added tax (CENVAT), besides an interest subvention of 2 per cent on export credit, in which it shares the burden of interest on loans taken by exporting companies, and additional funds for refund of terminal excise duty or central sales tax (CST).

This proposal, if approved, will benefit exporters till the goods and services tax (GST) is implemented, which will merge CENVAT and state level VAT, leading to automatic reimbursement of various input taxes.