Education Tax on duty-free: RMG export to India from Bangladesh

(BSS, Dhaka); RMG exporters to India have complained of a number of impediments severely impacting the supply of 8.0 million pieces of duty-free garments started under SAFTA framework from the middle of last year.

Some exporters in writing informed the Export Promotion Bureau (EPB) of the snags recently, official sources here said adding the agency in turn has passed the complaints to the Ministry of Commerce seeking solution of the problems.

These exporters said India is collecting VAT and special VAT from what it declared duty free import in addition to education taxes on two counts and wondered how the merchandise remain duty free true to its purpose.

Under the circumstances, the EPB sources said exporters who initially showed great enthusiasm to RMG exports to India have already lost interest while new exporters are coming only in small numbers.

The situation indicates that the annual 8.0 million pieces export quota may thus remain largely unutilized and even come to slow death if the snags continue. The Indian government agreed to offer this special privilege to Bangladesh to help narrow its staggering trade imbalance with India.

RMG export figures from January 1 to February 23 showed that the so-called duty free export to India stood at around 1.56 lakhs during this time compared to 18.53 lakhs over the seven months from June to December.

In fact the snags hit the exports as soon as it started picking up following the Indian government application of internal duties; which altogether stood at 18 percent even minus the 10 percent duty exempted at import stage.

The sources said, last year exporters had applied for duty free quota certificates of 36.5 lakh pieces of garments but in reality collected only half of it as the Indian importers slowly become reluctant to secure supply having high internal duty on them. Sri Lanka witnessed similar snags, said an exporter questioning the Indian inward looking mind-frame. 'If you are not opening your mind, no duty free arrangement will work,' said an exporter explaining the situation.

So the new export initiatives under the scheme is only slowing down as only few new exporters are taking interest to export RMG to India while they have ready market in Europe and America, said a business source.

The Indian government is reportedly saying as information suggest, it has only removed the basic import duty at 10 percent on RMG import from Bangladesh. But other internal duties have remained in place.

Duties which the Indian government is collecting on Bangladesh apparels include central government VAT, Special central government SCVAT, secondary education tax (ETS) and higher secondary education tax (ETHS)- altogether 18 percent, exporters said.

"BGMEA president Anwarul Alam Chowdhury blamed poor negotiating capacity of the Bangladesh for the problem saying it should have made sure that duty free means no duty at all.

Now it appears that most duties have remain in place, he said. .

Exporters have also listed many non-tariff barriers. They alleged that customs officials on the Indian side raise question on the credibility of invoice value relating to export documents and often apply duty several times higher than the real value.

Very often they keep trucks loaded with export consignment stranded at the check post unattended for hours and exporters have to pay additional charges on hourly basis.

Indian government officials handling duty free export moreover, create unnecessary problems looking for small faults with export documents and sending it back to Dhaka for correction if they find some shortcoming.

Consequently the exporters have to pay demurrage charge bringing inconveniences to both exporters and importers, they said. Exporters said buyers at Hariyana, Mumbai, Kolkata and especially in northeastern states of India are taking big interest in knitwear, trousers, ladies shirts and pants made in Bangladesh.

But the question remains whether the Indian buyers can take this opportunity while the exporters are wondering whether the duty free scheme under SAFTA arrangement can over live the troubles.

Read More......

Indian Govt. Allows SEZ Units, Developers To Claim Refund Of Service Tax

The Indian Government has allowed special economic zones or SEZ units and developers to claim refund of service tax, irrespective of whether they are consumed inside or outside the zone. However, the benefit would flow in the form of refund of service tax and not through an exemption.

Until now, the government exempted developers from paying a tax on services that were consumed within the zone, while the services consumed outside the SEZ attracted taxes.

The move to refund tax paid on services provided outside the zone comes following a decision in this regard by the empowered group of ministers on SEZs headed by Finance and External Affairs Minister Pranab Mukherjee.

The Government put in place a new mechanism whereby SEZ developers and SEZ units would have to initially pay the tax on the services rendered to them (from inside and outside the zone) and then get a refund from the tax authorities within 6 months from the date of payment of service tax.
The notification clears the ambiguity with regard to eligibility of the service tax exemption in case of input services consumed by SEZ units and developers that were being disputed by the tax officials. The notification will come into effect on or after the date of publication of this notification in the Official Gazette.

Service tax is levied at the rate of 10%. Some of the services used by the units and developers outside the zone include courier service, transport service among others.

While the industry has welcomed the move to refund tax on services consumed outsides the zone, it wants the Government to give a blanket exemption. On the other hand, tax and trade experts opine that though the scope of the relief has been expanded, the procedure has been changed to provide for only refund of service tax rather than an exemption,

Welcoming the Finance Ministry move, L.B. Singhal, Director-General of Export Promotion Council for Export Oriented Units and SEZs, said "SEZ Act provides ab-initio exemption from service tax, whereas the notification has provided exemption from service tax by way of refund of service tax. Hence, service tax has to be paid first and then refund has to be claimed. It would result into unnecessary blockage of funds, paper work and transaction cost. Hence it would be appropriate if ab-initio exemption could be provided".

Click the following to see the Notification:

Notification No. 9/2009-ST dated 3.3.2009
Govt exempts taxable services provided to Special Economic Zones

Read More......

EOUs, SEZs seek clarification on ending discriminatory taxes

New Delhi, Feb. 24 The Export Promotion Council for EOUs and SEZs (EPCES) on Tuesday hailed the Government decision to end discriminatory tax treatment in respect of those exporters with a unit outside the SEZ as well as a unit in the SEZ, vis-À-vis those operating only in the SEZ. However, it sought a clarification through a circular from the revenue department.

In his reply to the Interim Budget in Parliament the Finance Minister, Mr Pranab Mukherjee, said “it has been decided to remove this anomaly through necessary changes in the Act”.

In a statement issued here, the Director General of the Council said after almost three years of operation of SEZ Act, this discrimination in tax treatment has been recognised by Parliament. However, he said, the SEZ units would still have to wait till an actual amendment is carried out.

Meanwhile, the Federation of Indian Export Organisation President, Mr A. Sakthivel, hailed the cut in service tax from 12 to 10 per cent, continuance of 4 per cent reduction in central excise duty beyond March 31, 2009 and cut in central excise duty on cement from 10 to 8 per cent. He said this would help boost domestic economy albeit on a limited basis. He said that cut in service tax rates would add to export competitiveness by about 0.25 per cent, as refund of service tax is a long drawn out process and only a few exporters obtain refunds while a majority of them wait for more than a year.

Read More......

Govt cuts excise, service tax; revenue loss at Rs 30,000 cr

New Delhi, Feb. 24 The Finance Minister, Mr Pranab Mukherjee, today gave up Rs 30,000 crore of revenue on an annual basis when he announced a slew of indirect tax concessions to bolster sagging demand for industrial goods and services.

This revenue foregone has not been factored in the Budget estimates for 2009-10.

He has also allowed the States to borrow more in 2009-10 for investing in infrastructure and help spur employment generation. Accordingly, States would not lose their debt relief facility in 2009-10 even if they were to exceed their fiscal deficit target by upto 0.5 per cent of Gross State Domestic Product (GSDP).

During the day, Standard & Poor’s (S&P) changed its outlook on India’s long-term sovereign credit rating from stable to negative. Mr Mukherjee said that this was “not unexpected. You have a global meltdown and it has its consequences”.

The latest stimulus, which could be the last one from the UPA Government before the general elections, includes the reduction of the cenvat rate to 8 per cent from the existing 10 per cent. About 96 per cent of the country’s excise revenues hitherto came under the 14 per cent rate, which was recently lowered to 10 per cent and now to 8 per cent.

The changes made in excise duty rates as part of the stimulus packages are now being extended beyond March 31, 2009. Service tax rate on taxable services have been brought down from 12 per cent to 10 per cent.

Also, excise duty on bulk cement has been reduced from 10 per cent or Rs 290 a tonne, whichever is higher, to 8 per cent or Rs 230 a tonne, whichever is higher.

However, the Government has decided to retain the rate of Central excise duty on goods currently attracting ad valorem rates of 8 per cent and 4 per cent respectively.

“It is another stimulus to the economy. I hope it will have beneficial impact. This will also help boost exports. The tax concessions would entail revenue sacrifice of Rs 30,000 crore (for a financial year)”, Mr Mukherjee told reporters after the Lok Sabha passed the Interim Budget 2009. The Finance Bill 2009 and the relevant appropriation Bill for the vote-on-account for the first four months of 2009-10 was also passed by the House.

In his reply to the debate in the Lok Sabha, Mr Mukherjee said that the latest figures confirm that the two fiscal packages (December 2008 and January 2009) were steps in the right direction. “Some of the key sectors of manufacture like cement and steel are exhibiting early signs of recovery”, he said.

Meanwhile, IT companies welcomed Mr Mukherjee’s announcement on Section 10AA of the Income-Tax Act. They hoped that the removal of the anomaly would help them get full tax benefits as had been originally envisaged in the SEZ scheme.

Read More......

FURTHER CONCESSIONS IN CENTRAL EXCISE & SERVICE TAX ANNOUNCED. CUSTOMS DUTY EXEMPTION ON NAPTHA EXTENDED BEYOND THIS FISCAL

Following are the extracts from the reply of Finance Minister, Shri Pranab Mukhejee on Interim Budget 2009-10, in Lok Sabha, on 24.2.2009 related to new concessions on Excise duties and Service Tax:

Within the constitutional constraints, I have some flexibility which I want to use to provide further stimulus to the economy.

Even though the signals are encouraging, the full impact of the recession in other parts of the world specially Europe and Asia is yet to unfold. Due to the strong export linkages with these economies, it is likely that the Indian economy may feel further impact in coming months. To counter any such effects, the UPA Government has taken the following decisions:

Central Excise

• General reduction in Excise Duty rates by 4 per cent points was made with effect from 7.12.2008. It is now being extended beyond 31 March, 2009. In addition, it has now been decided to:

• reduce the general rate of Central Excise duty from 10 per cent to 8 per cent.

• retain the rate of central excise duty on goods currently attracting ad valorem rates of 8 per cent and 4 per cent respectively;

• reduce the rate of central excise duty on bulk cement from 10 per cent or Rs. 290 PMT, whichever is higher to 8 per cent or Rs.230 PMT, whichever is higher.

Service Tax

The Government is keen that the business confidence in the Services sector is restored. It is also our objective that the dispersal between CENVAT rate and the Service Tax rate is reduced with a view to move towards the stated goal of a Uniform Goods and Service Tax. In line with this objective, it has been decided to reduce the rate of service tax on taxable services from 12 percent to 10 per cent.

To provide relief to the power sector, Naptha imported for generation of electric energy has been fully exempted from basic Customs Duty. This exemption which was available upto 31 March 2009, is now being extended beyond that date.

Section 10 AA of the Income Tax provides for exemption in respect of export profits of a unit located in a Special Economic Zone (SEZ). The export profits are required to be computed with reference to the total turn over of the assessee. This has resulted in discriminatory treatment of assessees having units located both in SEZ and the Domestic Tariff Area (DTA) vis-à-vis assessees having units located only within the SEZs. It has now been decided to remove this anomaly through necessary changes in the Act.

Read More......

FICCI seeks separate export promotion council for auto sector

NEW DELHI: Industry lobby Federation of Indian Chambers of Commerce and Industry (FICCI) Monday urged the government to set up a separate export promotion council (EPC) for India's automotive industry to help it achieve higher share in the global market.

"A separate EPC with the primary objective of helping the Indian auto sector to achieve 5 percent share in global trade in the next 10 years needs to be created," the chamber said in a statement.

According to UN estimates, India currently accounts for about 0.5 percent of the gross annual auto exports, marginally up from 0.2 percent in 2000.

Among developing countries, India stands sixth in the global auto exports, trailing behind China, Mexico, Brazil, Turkey and Thailand.

China is leading the market among developing countries with 4.4 percent share.

India has recently undertaken mass export activities with South Korean carmaker Hyundai's Indian operations leading the bunch as the biggest exporter.

"Indian automotive industry needs to diversify its destinations of exports for which this council would be instrumental. Currently, India does not export significant amount of automotive items to some of the major importing countries like Australia, Canada, Russia and Saudi Arabia," it added.

Read More......

Interim trade policy may make rules easier for exporters

NEW DELHI,: The government is likely to remove several procedural bottlenecks for exporters in the interim foreign trade policy to be unveiled by Commerce and Industry Minister Kamal Nath here on February 26.

The policy, though interim in nature, will address immediate concerns of exporters who are facing shortfall in demand for Indian goods in the recession-hit overseas markets like the US, a Commerce Ministry official said.

Exporters may be given more time to meet their export obligations in return for duty-free import of machinery and reimbursement of taxes without waiting for export proceeds.

The interim measures would be announced as an annual supplement to the five-year policy 2004-09 that was unveiled by the UPA Government at the beginning of its tenure.

The foreign trade policy lists the procedures, incentives for exports as also import rules. Though the policy has a five -year tenure, the government keeps changing the rules depending on the fast-changing trade scenario. For instance, the government had banned export of wheat and other food articles last year in the wake of high inflation.

It would be up to the new government to announce a full- fledged trade policy, the official said.

India's exports would be growing at lesser pace this fiscal as demand in the buying markets is slowing. Exports totalled USD 162 billion in 2008-09.

Read More......

Downturn may force India to postpone trade pact with ASEAN

The deal between ASEAN and India, which was under negotiations for the last six years, was expected to be signed between the two sides on 27 February in Thailand.

New Delhi: The unexpected setback to exports and the associated problem of domestic unemployment may yet spike the government’s plans to sign a free trade agreement (FTA) with the Association of Southeast Asian Nations (ASEAN), a powerful trade block of 10 countries.

With general election due in the next two months, the Congress-led United Progressive Alliance government may find it difficult to justify a freer trade regime at a time when industry is reeling under the impact of a global recession and contracting domestic demand.

Two senior government officials, in separate interviews, confirmed on the condition of anonymity that FTA with ASEAN along with similar agreements with Thailand and South Korea had been readied and put up to the cabinet for approval. “It is now a political decision,” one of the officials said.

Indian exports contracted for the third consecutive month, declining by 1.1% in December, even as a survey by the labour ministry found that 500,000 people had lost their jobs in export-oriented sectors such as gems and jewellery, back-office services, textiles and handicraft.

Talks were on for the last six years and the deal was expected to be signed on 27 Feb in Thailand. The ASEAN FTA was due to be inked in December, but was put off following political instability in Thailand. However, since then, the global economy has contracted even more sharply, forcing India to scale down estimates of its growth to 7.1% in 2008-09, from at least 9% in the previous three years.

In addition, the agreement has run into a procedural problem. According to the original schedule, the first round of tariff cuts was to come into effect on 1 January. If the deal is signed now, then this will come into effect on 1 June. According to the existing schedule, the second round of tariff cuts is due on 1 January 2010 and India has reservations with this, as it would mean effecting two rounds of tariff cuts in six months.

One of the officials disclosed that some kind of “compromise” would be worked out if the cabinet did indeed clear the agreement. ASEAN’s secretariat could not be immediately reached for comment, and a spokesperson for the Thai embassy could not be reached because he was travelling. According to the agreement between ASEAN and India arrived at after negotiations concluded in August, both sides have agreed to reduce or eliminate tariffs on 95% of the commodities in the trade basket over the next nine years. India had agreed to do this in three phases starting from 1 June 2009 and ending between 2012 and 2018.

For the so-called sensitive items for which tariffs need to reduced to 5%, the agreed time line is 2018, while for other items the tariff elimination was to happen in two phases, by 2012 and 2015. Now, ASEAN has demanded the whole process be completed in two phases.

A commerce ministry official, who, too, declined to be identified, confirmed the development. “There is some talk. We have a viewpoint. They have a viewpoint. However, we are firm on our standpoint.” However, he tried to play down the issue and said it was a “minor” one that would “be resolved”. The deal between ASEAN and India, which was under negotiations for the last six years, was expected to be signed between the two sides on 27 February in Thailand.

Both sides had agreed to reduce tariffs to zero for nearly 4,000 of the 5,000 items that are traded. A negative list of 489 items (where import tariffs would not be cut) across sectors such as agriculture, textiles, machinery and automobiles was also agreed upon. According to the terms finalized, India will also maintain a so-called highly sensitive list for five products: crude palm oil, refined palm oil, black tea, pepper and coffee. By 2018, tariffs for refined palm oil will be reduced by 60%, while those for the remaining four items will be halved.

India remains the seventh largest trading partner of ASEAN, with trade between the two being worth $38.37 billion (Rs1.9 trillion today) in 2007-08. Trade between India and ASEAN has been growing at a compounded annual growth rate of 27% since 2000; it is projected to touch $48 billion in 2008-09. India’s main trading partners in ASEAN are Singapore, Malaysia, Indonesia and Thailand, which account for 90% of the trade. India and ASEAN together have a population of 1.7 billion and a combined GDP (gross domestic product) of $2.4 trillion.

The two sides had also agreed to commence negotiations on trade in services and investment and to work towards the conclusion of substantive discussions on these two agreements by 2009, to bring about a complete ASEAN-India Comprehensive Economic Cooperation Agreement. Asked whether India should open up at a faster rate at a time when the industry is reeling under the impact of a severe slowdown, Nagesh Kumar, director general at think tank Research and Information System for Developing Countries, said, “The current slowdown is a shorter phenomenon whereas such trade agreements looks for long-term gains. By the time the impact of the ASEAN FTA is felt on Indian industry, the current downturn would be over.”

Arguing similarly, Manav Majumdar, who heads the international trade desk at industry lobby Federation of Indian Chambers of Commerce and Industry, said: “Because of the zero duty, if there is a surge in imports, there are safeguard measures available to check that from happening.”

Read More......

Strong case for boosting external trade to combat slowdown: Pranab

NEW DELHI: External Affairs Minister Pranab Mukherjee acting as the finance minister said on Thursday that there is a strong case for stimulating
domestic demand and boosting external trade to combat economic slowdown and poverty.

The statement comes three days ahead of the country's interim budget. Mr Mukherjee is slated to present the interim budget in the Lok Sabha on Monday.

"There is a need to sustain our foreign trade, revive foreign investment and generate domestic demand in order to maintain our growth rates, which are essential for the uplift of the multitudes below the poverty line," Pranab Mukherjee said at the annual meeting of industry body Federation of Indian Chambers of Commerce and Industry.

The global financial crisis and the subsequent slowdown has reduced the country's exports and domestic industrial output. The economy is expected to grow at 7.1% in the 2008/09 fiscal year, down from 9% last year.

On Thursday, data showed that industrial production contracted 2% in December from a year earlier, as firms cut production fearing lower sales and inventory pile ups.

The minister, however, expressed optimism that the country, would still perform much better than most other nations in the world. "I am happy to say that in 2008/09 India will still grow by around 7%," he said.

"As we stand out in the world as one of the key growth centres, I remain confident that we will be able to attract more foreign direct investment (FDI) and that foreign institutional investment (FII) flows will return to our markets because this is where growth is happening and this is where profits can be made," Mr Mukherjee said.

Read More......

Domestic drug makers will not need GMP certificate

NEW DELHI: Domestic drug makers will no longer need a certificate of good manufacturing practice (GMP) from the World Health Organisation (WHO)
to sell their medicines within India.

The Drug Controller General of India (DCGI) has asked state drug controllers to let companies sell their brands in the country without the WHO s quality certificate, provided they comply with the quality norms set out in the Indian law.

That is, if they produce the DCGI's Certificate of Pharmaceutical Products (COPP), they can sell their brands in India. COPP and WHO certification are compulsory if the company wants to export, a government official, who asked not to be named, said. The DCGI would not issue WHO-GMP certificate to any company from now on.

"For marketing medicines within the country, only schedule M certification under the Drugs and Cosmetics Act (DCA) is required. State regulators have been directed that they no longer need to insist for a WHO-GMP certificate from manufacturers while giving them marketing permissions," the official said.

GMP is aimed at diminishing the risks inherent in pharmaceutical production. WHO GMP certificate is given based on certain guidelines laid down by WHO through which the regulator ensures that medicines and other medical products are consistently produced and controlled to the quality standards required for their best use.

The WHO-GMP certificate is a mandatory requirement in most global markets for companies to be able to sell their medicines. It is also required for specific drugs being supplied under the global disease control project to treat diseases like tuberculosis, malaria and AIDS.

However, the government claims that the Indian norms laid in the drug law is at par with the WHO-GMP guidelines and therefore there is no need to endorse the WHO norms. "We are also in talks with several international agencies in order to ensure that companies holding the COPP do not face problems in exports. It is important for the government as well to ensure that our own regulations find enough recognition in the international markets," the official said.

The drug regulator gives a COPP after conducting an inspection of the manufacturing plant. The certificate is valid for a period of two years. The Indian pharmaceutical market is estimated to be at around Rs 65,000 crore. Out of this, export accounts for around Rs 30,000 crore.

Read More......