Remissions of Duties and Taxes on Exported Products (RoDTEP) is a much-awaited scheme which seeks to replace the Merchandise Exports from India Scheme (MEIS).
MEIS was devised to incentivise exporters in offsetting infrastructural inefficiencies and the associated costs. It was considered a subsidy and pronounced as a violation of the World Trade Organisation (WTO) rules, by its Dispute Settlement Body in 2019.The Subsidies and Countervailing Measures (SCM) Agreement of the WTO prohibits a government especially countries above a certain specific threshold of development, from providing financial benefits to exporters in the form of incentives
This prompted the Central Government of India to rollout alternate schemes that are compatible with the WTO mandate. With RoDTEP exporters will be compensated for the non-creditable duty/tax costs (such as Electricity Tax, Stamp duty, Mandi Fee, Tax on fuel, etc.) that are embedded in the export goods.
The government implemented the RoDTEP scheme with effect from January 2021. After missing several deadlines, the Ministry of Commerce notified the guidelines and rates under the scheme on 17 August this year. The new remission rates announced under the scheme envisage that the exporters will be compensated the embedded taxes, which were not recoverable (or refunded) and inbuilt in the price of the export commodity, leading to intense competition in the international market.
It is apparent from the commodity-wise rates announced under RoDTEP that the government's focus has been on products that are relatively poor in export volume and have good potential to penetrate the international market.
1. The key differences between the MEIS Scheme and the newly launched RoDTEP Scheme are:
Under MEIS, an adhoc incentive was available as a percentage of the export price, which could be used for the payment ofimport duties. However, under the RoDTEP Scheme, exporters are entitled to a certain percentage of the export price as a scrip, which is limited approximately to the embedded taxes.
2. While the MEIS Scheme is an incentive in the form of physical, transferrable scrips used for payment of various components of Customs duties, the RoDTEP Scheme is an electronic, transferable credit, which can be used for payment of only the Basic Customs Duty.
3. The MEIS Scheme has been under the cloud from the standpoint of WTO norms compliance, whereas RoDTEP Scheme has been framed in accordance with WTO guidelines.
4. The MEIS incentive was often higher, as against RoDTEP, the basis of which is the actual taxes/duties embedded in the commodity.
Under the RoDTEP Scheme, exporters are entitled to benefit from 0.5% to 4.3% of the FOB value of the exported products falling under the specified HS Codes. Further, the RoDTEP benefit is also capped at a certain sum per unit of the exported product, like the Duty Draw-back scheme which also follows 'valuecap'.
Response to RoDTEP
The initial response of the exporters suggests that the RoDTEP scheme has not been able to enthuse them as the rate has been lower than expectations. Many sectors are disappointed at the remission rates while others are upset with the exclusion of their sectors/products from the scope of the scheme. The government has announced that it would reconsider the excluded sectors/products in the future.
Exporters from the pharma, steel and chemical industries, export-oriented units (including bio-technology parks and electronic hardware technology park), Special Economic Zones (SEZ), free trade warehousing zone and custom bonded warehouses operating under the Manufacturing and Other Operations in Warehousing Regulations are kept outside the scope of the new scheme. Many exporters have expressed their concerns and have suggested that the rates declared require immediate review. Few exporters cited their inability to submit details/data, as required by the Government, due to the current situation prevailing in the country on account of the pandemic.
The government has projected RoDTEP as a replacement of MEIS,even though both cannot be equated, inherently since MEIS has been an incentive while RoDTEP is remission of tax/duty 'costs' which has found its way in export pricing.
While the government's compliance with the WTO mandate is understandable, the exporter community has been comparing the benefits under MEIS with RoDTEP, and therefore drawing a gloomy picture. Exporters might likely revisit pricing strategies very soon to realign the prices in accordance with the new scheme.
While industry representatives feel that the government must devise suitable schemes to incentivise exports, the government is discussing measures to introduce appropriate structures that serve the twin objective of rewarding the exporters, while surviving the test of WTO mandates.
As RoDTEP is in its nascent stage, industry experts are exploring possibilities of initiating discussions with concerned authorities. One has to only wait and watch to see how this scheme evolves in the coming days.
(Gunjan Prabhakaran is Partner & Leader - Indirect Tax and Krishna Barad is Partner - Customs and International Trade, BDO India)