Exporters may have to settle for lower duty drawback rates

Exporters may have to settle for lower all-industry duty drawback rates for 2008-09 when the new rates are announced in the coming week.

The Government appointed three-member committee for formulating the duty drawback rates is understood to have recommended “generally lower rates” for 2008-09 than those suggested for the previous year.

The committee, headed by Dr Saumitra Chaudhuri, Member of the Prime Minister’s Economic Advisory Council, had recently submitted its report to the Finance Minister, Mr P. Chidambaram. Almost 90 per cent of exporters rely on the all-industry drawback rates.

Sources said that the significant reduction in customs and excise duties on many raw materials in Budget 2008-09 and also in the following months has led to lower recommended rates, especially for the downstream finished products. Rupee movements have had very little bearing on the recommended rates.

Meanwhile, Dr Chaudhuri told Business Line that the committee had taken the “most recent prices” (April-June 2008) of the input materials for arriving at the recommended duty drawback rates.

Interestingly, the committee has, for its recommendations, not limited itself to only the duty changes made in Budget 2008-09, but has also factored in the major duty rejig made by the Government in June 2008 on crude oil, petrol and diesel and also the removal of customs duty on raw cotton in July 2008.

Factoring in the duty changes in crude oil and other petroleum products has impacted the drawback rates of downstream finished products in the petrochemical industry, leading to lower recommended drawback rates for various products including plastics and manmade fibres, sources said.

In the first week of June 2008, the Government had removed customs duty on crude oil and also cut by 5 per cent the customs duty on petrol and diesel to 2.5 per cent. The customs duty on aviation turbine fuel (ATF) was also reduced. Besides, excise duty on petrol and diesel was cut by Re 1 a litre to Rs 13.35 and to Rs 3.60, respectively.

Taking into account the customs duty abolition on raw cotton has led to lower recommended duty drawback rates on certain finished garments.

The all-industry duty drawback rates are worked out by considering the consumption of input materials and the incidence of duties on these input materials.