Govt cuts sops on exports; 1100 items to be hit

As a setback to exporters, shipments of 1,100 items will be entitled to lower tax refunds from October 1 when curtains draw on the popular DEPB scheme, government announced on Friday.

On export of these items, the tax refunds would be reduced by 1-3 per cent, Finance Secretary R S Gujral said while unveiling the transitory scheme for the Duty Entitlement Pass Book (DEPB) scheme.

"As a transitory arrangement, these items will suffer a modest reduction in the existing DEPB rate to the extent of 1-3 per cent..." he said.

Industry sources said the reduction amounts to withdrawal of the stimulus package given in 2008-09 after the global financial crisis.

The DEPB rates were revised upward as a stimulus, they said. Since tax incentives for these goods will now be available under the Duty Drawback Scheme (DDS), the total number of items under the DDS would increase to about 4,000 from present 2,835.

While different avenues are available to exporters for refund of the duties, the DEPB is the most preferred route for its flexibility and attractive rates which average about 8 per cent.

The government had spent Rs 8,700 crore (Rs 87 billion) last year on DEPB refunds and engineering, chemical, pharma, textile and marine products have been the major beneficiaries.

With withdrawl of the DEPB scheme, the government's revenue forgone will be less, CBEC S D Majumdar said.

Since the DEPB scheme will not continue beyond September 30, it has been decided to provide a smooth transition for these items (mainly engineering, chemical, pharma, textile and marine) while incorporating these in the Drawback schedule.

Besides, the tax refunds for the items already under the DDS have also been reduced.

"The reduction is mainly on account of the reduction in basic customs duty on crude petroleum from 5 per cent to nil as well as a reduction in central excise duty on diesel from Rs 4.4 per litre to Rs 2.4 per litre," he said.

Of the 1,100 being shifted to DDS, there would be a ceiling of 5.5 per cent tax refund rate on 660 items.

However, the ceiling would not apply to 340 items worsted woollen yarn, blanket, nylong twine, cut polished chat stones, polyester metallised film.

Though exports have shown a remarkable performance, growing by 54.2 per cent between April-August 2011 to $134.5 billion, there are concerns that the momentum may not be sustained in the wake of increasing economic problems in the US and Europe.