Curbing Rate Proliferations will help Indian Exports : Daily Current Affairs

Date: 21/12/2022

Relevance: GS-3: Indian Economy and Trade, mobilization of resources, growth, development; Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

Key Phrases: RoDTEP council, foreign trade, Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, e-scrips, Merchandise Export from India Scheme (MEIS), Rebate of State and Central Levies and Taxes (RoSCTL) Scheme

Context:

  • Recently, a Parliamentary Standing Committee on Commerce has recommended setting up a RoDTEP council, along the lines of the GST Council.

Key Highlights:

  • The RoDTEP council envisages to review refund rates under the Centre’s Remission of Duties and Taxes on Exported Products (RoDTEP) scheme for exporters.
    • Also, lay out a road map for short- and medium-term changes in rate structure.
  • But the fact that RoDTEP coverage has been controversial and rates are being flagged for revision is affecting the trade and exports.
    • It is of great concern because like the GST rates there are too many chopping and slicing of products and there is no consistency in the rates.

India’s export Ecosystem at a glance

  • India’s goods exports stood at a valuation of $422 billion in FY 2021-22.
    • It is $130 billion more (a 44.6% increase YoY) than the $291.8 billion recorded in FY 2020-21.
    • India ranks 18th amongst its global peers.
  • Gujarat, Maharashtra, Tamil Nadu, Karnataka and Uttar Pradesh alone contribute 66.8 percent of India’s overall exports in FY 2020-21.
  • Out of the 766 districts in India, the top 10 % districts contribute 85 per cent of India’s overall exports.

What is Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme?

  • About
    • The RoDTEP scheme was launched in March, 2020.
    • It has been implemented since 1 January 2021 to reimburse exporters for various levies.
  • Objectives
    • It is a scheme for exporters to reimburse taxes and duties paid by them which are not getting exempted or refunded under any other existing mechanism.
    • Taxes and duties included in RoDTEP include value added tax, coal cess, mandi tax, electricity duties and fuel used for transportation.
  • WTO Compliant
    • The RoDTEP scheme is in line with the WTO rules unlike the Merchandise Export from India Scheme (MEIS) that was found to violate the World Trade Organization Rules.
    • It also looks set to subsume Rebate of State and Central Taxes and Levies (RoSCTL), a similar package focused on apparel and other such exports.
  • Benefits of the RoDTEP Scheme

Rationale behind the RoDTEP

  • The basic argument behind the RoDTEP is that the products free of domestic tax burdens will be much more competitive in export markets.
  • The GST system which lets exporters claim input credits and custom duties on imported raw materials through Advance-Authorization and Duty-Drawback schemes to make manufacturing and exports business friendly and more competitive.
    • They are all aimed at cost-relieving effects and part of our official effort to cheapen local production for a better shot at global markets.
  • Similarly, RoDTEP was designed to refund export units that shell out money on various other central and local levies, like fuel excise duties, mandi-level and value-added taxes, coal cess, etc.

Issues with the RoDTEP Scheme

  • Riddled with complexities and a work in progress
    • Similar to many other initiatives of the government with the interface of private parties, the RoDTEP is riddled with complexity, and constant work-in-progress i.e. there is constant chopping and changing of rules, products included and various rates in the Scheme.
  • No fixed eligibility criteria
    • In its first year of operation, RoDTEP had about 8,730 eligible items under it which has been enlarged to cover 10,342 items.
    • The newly added notable inclusions are pharmaceutical, chemical and steel export products.
  • Range of refund rates
    • The scheme’s refund rates vary in a range of 0.5% to 4.3% of an export item’s freight-on-board value.
    • Also there are provisions of unit-price caps acting as item-wise limits on grossly inflated claims.
  • Uneconomical refunds
    • Refunds are awarded in the form of ‘e-scrips’, which are credits in a ledger run by the Central Board of Taxation and Customs that can be transferred or used to settle custom bills.
    • Although the system seems convenient, it costs huge money (~ ₹14,245 crore was earmarked in 2022-23) to the Government for running such a scrip system.

Rebate of State and Central Levies and Taxes (RoSCTL) Scheme

  • The RoSCTL scheme was announced in March, 2019 by the Ministry of Textiles.
  • The RoSCTL scheme was offered for embedded state and central duties and taxes that are not refunded through Goods and Services Tax (GST).
  • It was made available only for garments and their products.

Way Forward

  • Need to address residual issues
    • There needs to be quicker resolutions of the residual issues for which a mechanism can be established.
    • A commerce ministry notification which sought to address “residual issues” of RoDTEP by an inter-ministerial panel chaired by the directorate general of foreign trade (DGFT) should be taken up quickly.
  • The parliamentary panel’s proposal of a RoDTEP council can help in rationalizing and tackling the unanticipated issues in time.
  • Rationalization of various rates
    • There are many issues with the Rate lists issued by the DGFT including the refunds amounts which need to be rationalized.
    • For instance shipments of Atlantic and Danube salmon can claim 2.5% of their on-board value with some specified caps but exports of Pacific salmon can ask for only 0.5%, with no cap specified.

Conclusion

  • The Indian policies have been plagued with micro multiplicity, overlapping and proliferation of unnecessary rates over the years.
  • The need of the hour is to push for an easy, simplistic rates ecosystem which may be harder to conceive but yield better results in the future.

Source: Live Mint

Mains Question:

Q. There have been talks of establishing a RoDTEP council in line with the GST council to minimize multiplicity of tax rebates for Indian export items, does India really need it? Suggest measures to establish a simplistic tax rebate framework for exports which is not plagued with the rate complexity. (250 words).