The new duty neutralisation scheme to replace the Duty Entitlement Passbook Scheme will reimburse exporters a fixed percentage of the tax incidence suffered on various inputs.

The government is likely to indicate a time frame for the implementation of the new scheme in the forthcoming annual supplement to the Foreign Trade Policy.

"The refund would equal a percentage, which is verifiable and quantifiable. For instance, if a tax is equal to Rs 100, the exporter will get a refund equal to an X percentage of Rs 100 under the new scheme," a government official said.

The above suggestion is contained in the draft report on the new World Trade Organisation compatible scheme, submitted to the government last week by the National Council for Applied Economic Research, the Rajiv Gandhi Foundation and the Economic Law Group.

The report, at present, is being examined by the commerce and finance ministry.

Under the existing DEPB scheme, which covers nearly 52 per cent of the country's total exports, an exporter can apply for credit as a specified percentage of FOB value of exports, made in freely convertible currency.

The credit is available against export products and at rates specified by the directorate general of foreign trade for import of capital goods, raw material, intermediates, components, parts and packaging material.

The 120-page draft report has worked out rates for around 115 broad product categories and has used the principle of Leontiff inverse matrix or the total requirement matrix to fix the product rates, a principle recognised internationally.

Officials said the new principle would take into account all the inputs required for producing one unit of an output.

"The existing DEPB scheme covers over 2000 tariff lines. The new scheme will cover additional items, but has favoured one rate for a broad category. For instance, there is one rate for shirts irrespective of whether the shirts are embroidered or not," an official said.

Officials pointed out the new scheme would seek to reimburse the duties suffered on inputs, which are actually consumed in the production process.

They, however, clarified the reimbursement of indirect taxes would only be available only for the non-value-added tax-able indirect taxes such as the central sales tax, the duties suffered on electricity and fuel like petrol and diesel.

The government had in 2003-04 foregone Rs 11,692 crore (Rs 116.92 billion) on account of DEPB. The estimate in the current fiscal upto January 2005 is estimated at Rs 8,700 crore (Rs 87 billion).

New formula