Making rebates WTO-compatible

The finance minister, in a press conference, announced that the present Merchandise Exports from India Scheme (MEIS) is to be replaced with one called ‘Rebate of Duties and Taxes on Export Products (RoDTEP). This would be from the beginning of 2020, with the outlay likely to be around Rs 50,000 crore.

The Director General of Foreign Trade (DGFT), clarified at the same meet that MEIS is not compatible with the disciplines under our agreements at the World Trade Organization (WTO), whereas the new RoDTEP scheme will be.  He said the outlay on MEIS, at Rs 40,000 to Rs 45,000 crore at present, was around the same.  

Conceptually, RoDTEP is the same as the Rebate of State and Central Taxes and Levies (RoSCTL) scheme introduced in March by the ministry of textiles for export of garments and made-ups. Under the latter, what is sought to be rebated is value added tax on fuel used in transportation, captive power, mandi tax, electricity duty, stamp duty on export documents, embedded Goods and Services Tax (GST) paid on inputs such as pesticide, fertiliser, etc, used in production of raw cotton, purchases from unregistered dealers and inputs for the transport sector,  central excise duty on fuel used in transportation and embedded GST and compensation cess on coal used in production of electricity, etc. Under  RoSCTL, the benefit to exporters from the DGFT is given in the form of MEIS-type duty credit scrips, at rates notified by the ministry of textiles.

For RoSCTL, the rates (including applicable value caps) for export of garments and made-ups were worked out and recommended by a Drawback Committee, then notified by the ministry of textiles. For RoDTEP, the same committee will work out rates for different sectors and let the DGFT notify these. Till the new scheme is introduced, the present MEIS will continue. In textiles, MEIS will continue along with the old RoSL (Rebate of State Levies) scheme till both are replaced with the new RoDTEP from the beginning of January.

RoSL was notified for apparel in August 2016 and for made-ups in January 2017. And, disbursed in a manner similar to drawback. The scheme was discontinued when RoSCTL scheme was introduced this March but now makes a temporary come-back.

Under RoSCTL, except for some items containing cotton, the rates are between 1.7 and 3.6 per cent of the FOB value of export. For some items, the rates are notified on a per-piece basis. Almost all the items are subject to value caps. If worked out fairly, the rates under RoDTEP are likely to be lower in some sectors, such as in engineering.  So, it is difficult to say that exporters will get more under the new scheme.

Overall, the minister’s announcements and clarifications by the DGFT end the uncertainties, give enough time for transition and set the stage for introduction of a WTO-compatible scheme. Hopefully, the rates will also be notified soon, to help exporters price their products accordingly.

E-mail: tncrajagopalan@gmail.com