Gold jewellery, glass art ware and handicraft exporters will soon be able to claim credit for taxes paid on inputs, giving these crisis-hit sectors some relief and improve their competitiveness in overseas markets.

The government is considering expanding the scope of the existing tax refund scheme to include exports sectors that have been hit by demand slowdown in the developed markets. The finance ministry is soon likely to issue a notification in this regard. The government will also not lower the existing tax credit rates till the time these sectors show improvement, a government official.

A government panel set up to examine the drawback or tax credit rates has recommended that the existing rates continue despite a reduction in excise duties and service tax as a part of the stimulus measure earlier. Such reduction in excise duty and service tax rates, the benefit of which would be available to inputs used in production of export goods, would have in ordinary circumstances required a reduction in the drawback rates as well.

The government had reduced excise duties for most products as a part of the stimulus packages to stimulate the global slowdown-hit economy. It had reduced cenvat (median excise duty) and service tax by 2% in the interim budget announced in February 2009. Drawback is a reimbursement given to exporters in lieu of taxes paid by them on inputs. The expert panel was not in favour of changing the rates at this stage as exports sector is still recovering from demand slowdown in India’s key export destinations.

Besides, the sharp appreciation in the rupee vis-a-vis dollar is also expected to erode away Indian exporters’ competitiveness in these markets to an extent. The panel was chaired the by Planning Commission member Saumitra Chaudhuri and had has former textiles secretary S B Mohapatra and former joint secretary, finance ministry T R Rustagi as its members.

Export of gold jewellery had dipped 40% in October 2009 to $513 million as compared to $891 million in the corresponding month last year. While exports of handicrafts have started recovering in recent months thanks to the stimulus measures, the year-on-year growth still remains in the negative zone. “The panel has suggested a status-quo on rates with minor tinkering in value caps,” another government official privy to the panel’s recommendations said. Exports have been declining for the past thirteen months and the government expects export growth to turn positive only after January 2010.

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