Dispute Resolution Panel (DRP) of World Trade Organisation (WTO) ruled that India’s export subsidy schemes violate global trade norms and has been asked to withdraw some export subsidy programmes, since subsidy schemes run by the Indian government were giving undue advantage to Indian businesses. Indian Government has appealed to the appellate body of WTO, challenging the decision of DRP. Currently the appeal is pending before the dysfunctional appellate body of WTO which provides time to Indian Government time to replace the present subsidy schemes. Meanwhile, Indian government decided to discontinue existing export incentive schemes which are in compliant with global trade rules.

The affected subsidy schemes of Indian Government due to the ruling of DRP of WTO are:

  • Merchandise Exports from India Scheme (MEIS)
  • Special Economic Zone (SEZ)
  • Export Oriented Units Scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme and Bio-Technology Parks Scheme
  • Export Promotion Capital Goods Scheme; and
  • Duty-Free Imports for Exporters Scheme.

In this article, we would discuss about the progression of MEIS to the exporters of goods in India.

Forthcoming from Indian Government

Indian Government has come up with a WTO compliant proposed scheme called ‘Remission of Duties or Taxes on Export Products’ (RoDTEP) to replace the present scheme of MEIS.

What is RoDTEP?

RoDTEP is a new scheme to replace the existing MEIS scheme for exports of goods from India,  which aims to reimburse the taxes and duties incurred by exporters such as local taxes, coal cess, mandi tax, electricity duties and fuel used for transportation, which are not getting exempted or refunded under any other existing scheme. The rebate would be claimed as a percentage of the Freight On Board (FOB) value of exports.

The Indian government has recently approved this scheme and will be notified in a phased mannerand accordingly Items will be shifted fromexisting scheme MEIS to RoDTEP with propermonitoring &audit mechanism.

This scheme will incentivise exporters at an estimated cost of Rs. 50,000croreto the exchequer.

MEIS RoDTEP

Evolution of RoDTEP

Objectives of RoDTEP scheme?

  • To boost exports Scheme for enhancing Exports to International Markets
  • To make Indian exports cost competitive and create a level playing field for Indian exporters in International market
  • To give a boost to employment generation in varioussectors
  • It aims to boost dwindling outward shipments

Features of RoDTEP

  • Presently only 30% of total actual indirect taxes incurred by the exporters are refunded through existing MEIS scheme
  • Under the WTO rules, certain duties like state taxes on power, oil, water, and education cess are allowed to be refunded
  • In this backdrop, RoDTEP scheme framed in accordance with WTO guidelines which reimburses the taxes/ duties/ levies, at the central, state and local level, which are currently not being refunded under any other mechanism, but which are incurred in the process of manufacture and distribution of exported products and the following taxes will be refunded through this scheme
  • Taxes include VAT, Central excise duties on fuel used for transportation, electrical duties, which are not getting exempted or refunded under any other existing mechanism.
  • Earlier incentives are provided in the form of transferable Scrips, but this new scheme aims at creating an Electronic credit ledger in the customs system which enables digital refund to exporters, duties and taxes levied at the centre, state and local levels.

Key differences between MEIS and RoDTEP?

Aspect MEIS RoDTEP
 

 

 

Schema of Incentive

Additional Incentive on Exports of goods apart from other refunds and drawbacks available on undertaking the said exports. Refund of Indirect taxes on Inputs used in the manufacture of exported product which is not being currently reimbursed by any other existing schemes.
WTO Compliance Non-Compliant with WTO trade norms Compliant with WTO trade norms
Incentive Percentage 2% to 5% of FOB value of Exports. Product based % way of reward – Expected to be lesser than the existing MEIS Incentive scheme

[To be notified later]

Mode of Issuance Issuance in the form of transferable scrips (Hardcopy/ downloadable) Issuance in the form of transferable duty credit/ electronic scrip which will be maintained in electronic ledger.
Transferability Freely Transferable Freely Transferable

Conclusion

It is too early to comment on the RoDTEP scheme, since the incentive rates are not yet fixed. Implementation of RoDTEP replacing MEIS would make India a compliant exporter in the international market. However, Indian Government has to ensure that the new scheme should not reduce the benefits of present scheme at a shot. Further, recent amendment in GST Act to restrict the valuation of goods by exporters which impacts the working capital of the business. Further, reducing the incentives to the exporters would whack the exports by India.

Special thanks to Venkatnarayana G M (Advocate) and CA Spudarjunan for their valuable inputs& suggestions.

(For any feedback/queries mail to [email protected])

Author Bio

Qualification: CA in Practice
Company: Hiregange & Associates
Location: Visakhapatnam, Andhra Pradesh, IN
Member Since: 28 Mar 2020 | Total Posts: 2
He is a qualified Chartered Accountant and also a Cost and Management Accountant. He is a commerce graduate from Andhra University. Currently working at Visakhapatnam Branch of Hiregange & Associates in audit wing. His core competencies have been in the area of GST, FTP, and customs. View Full Profile

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