Govt notifies new duty drawback rates for 4000 export items‎

Exporters will get lower tax refunds from October 1, as the Union finance ministry on Friday announced a new Duty Drawback Scheme, ending the 14-year-old Duty Entitlement Passbook Scheme (DEPB).

To provide a smooth transition from the popular tax credit scheme to the drawback scheme, the ministry said the drawback rate would have a floor rate of 5.5 per cent of the value of export consignments for most items.

The decision, taken after years of dallying, to neutralise the input tax paid on duties, may primarily affect companies in the engineering sector, including automobiles and the auto component industry, chemicals, textiles, pharmaceuticals and the marine sector, which were major exporters, getting the benefit of the DEPB scheme.

The finance ministry has softened the blow, as the new duty drawback rates will mean a moderate reduction of one to three per cent in the existing DEPB rates. The lower reduction has been provided only for the current financial year and the rates may be rationalised next year.

“Since the DEPB scheme will not continue beyond September 30, it has been decided to provide a smooth transition for these items, while incorporating these in the drawback schedule. As a transitory arrangement, these items will suffer a modest reduction in the existing DEPB rates, to the extent of one per cent to three per cent, which represents the ad hoc rates of DEPB introduced in 2007,” Finance Secretary R S Gujral told a press conference.

There are 2,130 items on the DEPB list, of which 1,030 are also covered in the drawback schedule.

The remaining 1,100 items would now be incorporated in the new drawback schedule, taking its total count to about 4,000 items from the present 2,835.

With the DEPB facility, exporters got credit for customs duty paid on inputs used in making export goods. Under duty drawback, they receive duty-free scrips which can be used to pay import duties. The DEPB scheme was based on the assumption that the exporter used duty-paid imported inputs. Duty drawback neutralises levies paid on inputs. The revenue outgo towards the DEPB scheme has increased over the years and was Rs 8,700 crore last year.

“With withdrawal of the DEPB scheme, the government’s revenue forgone will be less. But our intention was to unify export promotion schemes, not maximise revenues,” said the Central Board of Excise & Customs chairman, S Dutt Majumder. He said the rates would be notified by the end of next week.

The ministry said the duty drawback rates for items under DEPB were recomputed taking into account prevailing customs duty rates. It was observed that for most items, the recomputed rate worked out to be far lower than the existing DEPB rates, even after removal of the ad hoc element of one to three per cent. Despite that, the ministry decided to have the minimum drawback rate at 5.5 per cent for most items, so that exporters were not adversely affected. For another 340 items, such as worsted woollen yarn, blankets and nylon twine, where the recomputed rate worked out to more than 5.5 per cent, the government has decided to provide the higher recomputed rate. The rate could be over 10 per cent for some items.

Ramu S Deora, President, Federation of Indian Export Organisations, said since reduction would be only to the extent of the stimulus component, added to DEPB rates in October 2008, the new rates will be, by and large, acceptable to the industry. He said even if the new drawback rates were a little less, the saving on account of transaction time and cost would offset the disadvantage.

Despite sluggishness in other sectors of the economy, exports turned out to be the silver line. They grew 54.2 per cent in the first four months of this financial year to touch $134.5 billion year-on-year. However, exporters were worried over discontinuation of the DEPB scheme.