Industry disappointed with reduced duty drawback rates

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By Srabani Sen

The withdrawal of the country’s most popular and effective scheme for export promotion—Duty Entitlement Pass Book (DEPB)—was inevitable as it contravened certain stipulations of the WTO. The new Duty Drawback Scheme (DDS), which came into effect from October 1, 2011, is compatible with WTO rules. The new scheme provides for the reimbursement of local taxes on inputs used in goods manufactured for export. It is being expanded to partially compensate for the loss to exporters due to withdrawal of the DEPB scheme. The new rates for duty drawback or tax refunds on 4000 export items for the current fiscal are slightly lower than what was provided in 2010-11.

Duty drawback is the refund of customs duties and fees paid on imported merchandise that is either re-exported or destroyed under customs supervision.

Manufacturers disappointed

The electronics industry expressed its disappointment over the abolition of DEPB. “It has been reported by a number of manufacturers and exporters that there are a number of anomalies in the revised DDS causing problems in its implementation. This is particularly due to contradictions in the classification of the products and electronic components. ELCINA is interacting with the industry and the government to rectify these problems,” explains Rajoo Goel, secretary general, ELCINA.

Currently, companies get the DEPB benefit on an average rate of 9 per cent. On the other hand, the average duty drawback rate when the Cenvat facility is used is 13-14 per cent. Despite this, DEPB is considered more attractive as the exporters get the duty free scrip or entitlements based on the value of goods exported, to pay for import duties. Although the assumption is that all the inputs have been imported, exporters are allowed to use up to 50 per cent domestic inputs.

“Extending DEPB indefinitely was not possible due to WTO restrictions. However, we hope that the government will take care of the anomalies raised by the industry,” says T Vasu, director, Tandon Group and president, ELCINA.

New duty drawback rates

Most of the items that are already covered under the duty drawback schedule suffer a minor reduction in the existing drawback rates. The benefit to the exporters is, however, lower by 1-3 per cent in comparison to the DEPB scheme.

Exporters now get a drawback on 4000 items, including those that are presently covered under the DEPB scheme. Since tax incentives for these goods will now be available under DDS, the total number of items under DDS would increase to about 4000 from the present 2835.

The popular DEPB

Under the DEPB scheme, the government’s annual expenditure in reimbursing exporters was about
Rs 85 billion (Rs 8500 crore). The DEPB scheme had helped exporters by partly offsetting the import duty on raw materials for export items, and even those using domestic inputs were allowed to avail this benefit.

“Although some rationalisation has been done while deciding on the new duty drawback rates, it is still going to be a loss for hardware manufacturers. The government should give a special DDS reduction rate to all hardware products,” concludes Sujata Soparkar, director, Integrated Electronics Technology P Ltd.

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