Offering some relief to exporters, the government on Thursday marginally increased duty drawback rates — the rate of compensation for input taxes on exports — on more than a hundred items, including bicycles, tyres, marine and seafood, leather products, yarn and handicrafts. The move comes in the wake of protests over the pruning of rates last year.

Exporters, however, want a more significant increase in rates across all sectors in a way that compensates for all the embedded taxes not accounted for in the present calculations.

"The increase in duty drawback rate announced today is only to the extent of 0.2 per cent to 0.5 per cent for most items. For some chemicals, the duty drawback rate has actually gone down," said Ajay Sahai from the Federation of Indian Export Organisations. Last year, following the implementation of GST, duty drawback rates fell by as much as 7 per cent for some sectors.

Compensation issue

Sahai said their demand for including compensation for embedded taxes in the duty drawback rate has not been addressed. "We are hopeful that once the embedded taxes are accounted for, there will be an increase in the drawback rates across sectors. A large number of sectors, including textiles and garments, have not been included in the rate revision," he said.

Embedded taxes are levies imposed on inputs that go into products that are not taxed. Exporters, therefore, cannot get input tax credit on them. The taxes therefore have to be absorbed in the price of the item, which affects exporters’ competitiveness.

As the enhanced rate of incentives announced under the popular Merchandise Export Incentive Scheme in December last year will run out in June, exporters want their grievances related to duty drawback to be addressed before that.

India’s goods exports have recovered to an extent in the current fiscal, with total exports in the April-December 2017-18 rising 12.5 per cent to $223.51 billion. While exporters hope to reach $300 billion this fiscal, it would still be lower than the $314 billion exports clocked in 2013-14.

The Centre said Thursday’s revision was carried out in response to the problems pointed out by the industry.

Tax neutralisation

"As a step towards more efficient input tax neutralisation on the exports, after considering various representations from the trade and industry, the government has enhanced the all industry rates of duty drawback for 102 tariff items," a release from the Finance Ministry stated.

The enhanced rates of duty drawback will take effect from today.

The export items covered under the higher rates also include automobile tyres and bicycle tyres/tubes, yarn and fabric of wool and glass handicrafts.

"The revision of drawback is a welcome relief to exporters and their cash flow should improve, which had been adversely impacted because of delayed refunds and increased input cost in GST," according to Bipin Sapra, Tax Partner, EY India.

 26 Jan 2018, 06:27 AM