Rupee fall to have little effect on duty drawback rates

Officials said a high-powered panel to finalise the duty drawback rates had given its views to the finance ministry

The rupee’s sharp depreciation against the dollar would have a marginal impact on duty drawback rates, to be notified shortly for the current financial year. Drawback on exports means refund of duties paid on imported inputs used for exports. Drawback is not a reward scheme and is meant only for neutralisation of duty.

Officials said a high-powered panel to finalise the duty drawback rates had given its suggestions to the finance ministry in the first week of September. These include a 0.1-0.5 per cent change in the rates owing to the currency fluctuation. The current rates came into force on October 10, 2012. Since then, the currency has fallen 24.52 per cent to 65.25 against the dollar as on September 6, which will result in higher duty refund. “Because of the change in currency, we have taken the latest data from the central excise database and, therefore, relative price movement could change in some commodities,” said a senior official directly engaged in the formulation of drawback rates.

According to officials, drawback rates of around 4,000 commodities are analysed annually.

“The impact of rupee depreciation on the drawback rates will be there, but it will be nominal,” the official explained.

In the normal course, duty drawback rates should move according to duties changed in the Budget.

In fact, the finance ministry had pushed for a cut in the duty drawback rates as the realisation of exporters had gone up due to depreciation of the rupee. After two months of contraction, exports had registered an 11.6 per cent rise in August, year-on-year. “Since duty drawback is the percentage of FOB (freight on board, which includes ex-factory price plus other costs) value, refunds have gone up,” a finance ministry official had said.

While exporters of some commodities are asking for an increase in drawback rates, arguing the current rates do not measure the hidden taxes, the ministry is planning to rationalise it, keeping in mind the rupee fall.

The panel on duty drawback, headed by Planning Commission member Saumitra Chaudhuri, has looked into the issue.

Its recommendations are not binding on the finance ministry.

A member said the increase in drawback rates, as demanded by the industry, was ruled out because the tax rates had not gone up in the last one year, barring a few commodities.

Some of the suggestions by the finance ministry include bringing down the excise component in the calculation of duty drawback rates. The issue was also raised during finance minister P Chidambaram’s meeting with Chief Commissioners of Central Excise, Custom and Service Tax last month. The drawback committee speaks to traders of various commodities across the country and takes the weighted average of the duty on raw material.

Last year, the finance ministry had announced increase in the duty drawback rates on most of the products. However, the drawback rates for some items such as leather trunks and handbags, wool yarn and fabric, gaskets, lawn tennis balls, cricket balls, etc. were reduced from the rates applicable in 2011-12.

In between, the finance ministry had increased the duty drawback rate by $2.93 per gram of net gold content in jewellery and gold ornaments from the earlier rate of $1.69. This amounted to a 73 per cent hike.