Rates of tax refunds under RoDTEP announced
The Indian government recently announced the rates of tax refunds under the export promotion scheme known as Remission of Duties and Taxes on Export Products (RoDTEP) for 8,555 products.
In 2019-20, the World Trade Organization’s Dispute Settlement Panel ruled on a petition filed by the U.S., concluding that some of India's export benefit regimes provided an undue advantage to Indian exporters in violation of the WTO’s Agreement on Subsidies and Countervailing Measures (SCM), which prohibits subsidies that are based on export performance.
Under the SCM Agreement, all developing countries whose per capita income exceeds USD 1,000 annually for three consecutive years are required to phase out all export incentives. India has exceeded this threshold.
To replace the disputed export benefit schemes and to implement a transparent, WTO-compliant regime, the government of India on August 17, 2021 introduced the RoDTEP scheme, effective retrospectively from 1 January 2021.
Before the introduction of this scheme, only specified tax ‘costs’ were factored for the ‘drawback’ scheme and refunded in cash as a percentage of the free on board (FOB) value to exporters. Various other taxes and levies imposed by the central and state governments and local bodies on goods and services used in the manufacture and export of merchandise were not refunded, but instead were absorbed and became part of the price of the exported goods. Under the new RoDTEP scheme, these non-creditable tax costs embedded in the price of export goods are remitted to exporters automatically in the form of an electronic, transferable duty credit scrip. These duty credit scrips are credited to the exporter’s ledger account maintained by the Customs authorities, and can be used for payment of basic customs duty on imports.
Exporters are required to declare in the shipping bill their intention to avail themselves of the RoDTEP benefit. Failure to do so would result in no benefit accruing to them. The government has informed exporters to inscribe their intention to claim the benefit for the past periods when the rate announcement was pending.
After a long wait, the central government announced the tax refund rates in September 2021. These rates range between 0.01% and 4.3% of FOB of export value for nearly 8,555 products, based on the evaluation of average non-creditable taxes incurred by each product.
Features of RoDTEP scheme
- All items under the former Merchandise Exports from India (MEIS) and the Remission of Taxes on Textile Articles (RoSCTL) programs are brought within the purview of the new RoDTEP scheme.
- Previously non-refundable duties/taxes--central excise duty and state VAT on petroleum products, stamp duties imposed by state governments, Mandi tax and coal cess, for example--that are outside the Goods and Services Tax (GST) are considered refundable under RoDTEP.
- RoDTEP is given as percentage of FOB value of export or a fixed amount per unit of export.
- Verification of records is done through an IT-based risk management system for speed and accuracy.
- RoDTEP will operate under a budgetary framework, with no carry-over of allocation to the next fiscal year.
- This scheme will not be available to exporters that are already availing themselves of other exemptions.
Eligibility for RoDTEP scheme
All sectors, including the textiles sector, are eligible to participate in the RoDTEP regime. Labour-intensive sectors that enjoyed benefits under the former MEIS scheme have been included in RoDTEP. Manufacturer exporters, merchant exporters and courier exporters by e-commerce platforms are eligible for benefits. While there is no turnover threshold to qualify for RoDTEP, the export products must originate in India.
The following categories of exports are not eligible for the RoDTEP regime:
- Exports through trans-shipment (that is, goods originating in a third country shipped through India)
- Export products that are subject to a minimum export price or export duty
- Exports made from non-Electronic Data Interchange (EDI) ports or for which electronic filing is not done
- Re-export of imported goods
- Products prohibited/restricted for export
- Goods supplied from the domestic market to SEZ/Free Trade Warehousing Zones (FTWZ).
- Products of Electronic Hardware Technology Park/Bio-Technology Park/EOU/SEZ/FTWZ/Export Processing Zones/Advance Authorization Holder
- Products manufactured in a specified customs bonded warehouse
- Products manufactured for specified exports
- Deemed exports/goods taken into use after manufacture
Many sectors/products such as iron and steel, articles of iron and steel, pharmaceuticals and fertilizers, mineral products, chemicals (both organic and inorganic), live animals, meat and tobacco have been excluded from the benefit, although they continue to incur a tax cost burden. However, the government has announced that the impact on these sectors would be evaluated and if necessary, changes would be made in the future.
Challenges and the way forward
The RoDTEP scheme is an end-to-end digitised scheme with monitoring and audit mechanisms that is expected to level the playing field for India’s domestic industry. At first sight, it appears that the recently announced RoDTEP rates are substantially lower than the comparable MEIS rates. In fact, for a few sectors, the rates would not compensate for the tax costs fully.
It is also possible that many exporters may have failed to make the mandatory declaration in their shipping bills regarding their intent to claim the benefit during the period between January and August 2021. It is expected that a special dispensation may be made to address the concern of those exporters in that situation.
Finally, no reason has been cited for the exclusion of certain sectors from the program, but the understanding is that these sectors are able sustain themselves without support schemes.
To remain competitive in the international markets, exporters should consider analysing the benefits available under the scheme vis à vis the actual embedded tax costs to evaluate alternate structures or make representation to the government.
Dinesh Kumar B