Fair job in duty drawback revision

The government revised the All Industry Rates (AIR) of duty drawback on October 4, the day the rupee rose to its five-and-a-half-month high of Rs 51.75 to a dollar.

As expected, the rates went down for most of the items finding a place in the drawback rate schedule after abolition of the Duty Entitlement Passbook (DEPB) scheme. Last year, when many items were moved from DEPB to drawback, the government had prepared the ground by cautioning that as a transitional arrangement, these items would see a modest reduction from their DEPB rates, from only one to three per cent. This year, the government has carried forward the reduction in rates for such items, to ensure that the AIR are closer to the rates based on certain broad parameters such as prevailing prices of inputs, standard input output norms, share of imports in the total consumption of inputs, FOB value of export goods, the applied rates of central excise and customs duties, after factoring of incidence of service tax paid on taxable services used as input in the manufacturing or processing of export goods and incidence of duty on high speed diesel/furnace oil.

 

Rajiv Bajaj, managing director of Bajaj Auto, the country’s second largest two-wheeler maker, said the company would increase prices in the international market after the duty drawback cut from 5.5 to two per cent. “It is not so much about price competitiveness at the front end because we are either competing with the Chinese, who are much cheaper than us and the last three per cent doesn’t really change anything, or with the Japanese, who are often a little more expensive,” he said. This might also be the position with other exporters of branded products with distinct characteristics.

However, the exporters of products that are commoditised, such as garments, are not in a similar position to easily raise prices in highly competitive markets abroad, especially in rich counties. The government has, for most of such items already covered under the duty drawback schedule prior to October 1, 2011, raised the rates, mainly to offset the input costs, rise in excise and service tax rates and wider coverage of service tax. Even so, some of the items like leather trunks and handbags, wool yarn and fabric, gaskets (84.84), lawn tennis balls, cricket balls, felt tipped/porous tipped pens and markers and goods of heading 90.02 to 90.05 will see an AIR reduction. Some of these items get special incentives under the Focus Product Scheme.

The government has been somewhat liberal in making sure the existing residuary rate of one per cent ad valorem (all customs) will now be either a one per cent composite rate with 0.3 per cent customs component or 1.5 per cent (customs component) or two per cent (customs component). With certain exceptions, the drawback caps have not been assigned where the higher of the composite rate/customs component of the rate is 3.5 per cent (as against three per cent last year) or lower. Where the AIR is above 3.5 per cent, not every entry has been assigned the drawback caps. Where these have been assigned, the rates have generally been raised.

Overall, but for some feeble cries for more from wool product makers, the response of exporters was muted, indicating the government has done a fair job of meeting varied expectations.

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