It was recently announced that a new scheme, RoDTEP (Remission of Duties or Taxes on Export Products) Scheme will replace MEIS (Merchandise Exports from India) Scheme with effect from 1 January 2021. This has raised new questions for exporters who relied on MEIS until now. We summarised the facts known thus far about the new RoDTEP scheme and how it differs from the existing MEIS scheme.
Need for introduction of RoDTEP Scheme
The RoDTEP Scheme came into existence because USA filed a complaint against India at the WTO stating that export subsidies like the MEIS scheme given by the Government of India (GOI) gave undue benefits to Indian exporters and was against the WTO rules. India lost the case at WTO and had to come up with a new WTO-compliant scheme to help Indian exporters. Hence, the RoDTEP Scheme was approved by the Union Cabinet on 13th March 2020 and it will be effective from January 2021.
Scope of the RoDTEP Scheme
RoDTEP is a new scheme to replace the existing MEIS scheme for exports of goods from India,which aims to reimburse the taxes and duties incurred by exporters such as local taxes, coal cess, mandi tax, electricity duties and fuel used for transportation, which are not exempted or refunded under any other existing scheme. It is a scheme for exporters to make Indian products cost-competitive and create a level playing field for them in the global market.
Who is eligible?
- The Scheme will enclose all sectors (including textiles), with priority given to labour-intensive sectors which are enjoying benefits under MEIS Scheme at 2%, 3% or 5% of the export value from 1 January 2021
- Both merchant exporters (traders) and manufacturer exporters are eligible
- SEZ Units and EOU Units are also eligible to claim benefits
- There is no minimum turnover criteria to claim RoDTEP
- Goods exported through e-commerce platforms via courier are also eligible.
- Country of origin of the exported products should be India, re-exported products are not eligible
Key features of the new RoDTEP scheme
- GOI has mentioned that the Scheme has been allocated additional INR 50,000 crores from GOI corpus to benefit exporters with time-bound duty refunds.
- Under the RoDTEP Scheme, exporters will get refunds in the form of transferable duty credit/electronic scrip, which will be maintained in an electronic ledger.
- MoF has announced that the ITC will create a fully automated refund module to the manufacturing and service sector through Form GST RST-01. The automation shall reduce double taxation, claims for deemed exports, claiming GST tax refunds and acts as an authentic source to UN, WTO and other foreign embassies
Refund would be claimed as a percentage of the Freight On Board (FOB) value of exports. The rates have not been notified yet, but they are expected to be lower than the existing MEIS Incentive scheme, albeit with sector-wise variations. The remissions under the RoDTEP scheme would be a step towards "zero-rating" of exports, along with refunds such as Drawback and IGST.
Impact on exporters
At present, GST and import/customs duties for inputs required to manufacture exported products are either exempted or refunded. However, certain taxes/duties/levies are outside GST, and are not refunded for exports.
The sequence of introduction of the scheme across sectors, prioritisation of the sectors to be covered, degree of benefit to be given on various items within the rates set by the committee will be decided and notified by the department of commerce. MEIS benefits would be discontinued on such tariff line/item for which benefit under RoDTEP Scheme is announced.
Comparison between MEIS and RoDTEP
|Schema of Incentive||Additional Incentive on Exports of goods apart from other refunds and drawbacks available on undertaking the said exports.||Refund of Indirect taxes on Inputs used in the manufacture of exported product which is not being currently reimbursed by any other existing schemes.|
|WTO Compliance||Non-Compliant with WTO trade norms||Compliant with WTO trade norms|
|Incentive Percentage||2% to 5% of FOB value of Exports.||Product-based % – Expected to be lesser than the existing MEIS Incentive scheme [To be notified later]|
|Mode of Issuance||Issuance in the form of transferable scrips (Hard copy/ downloadable)||Issuance in the form of transferable duty credit/ electronic scrip which will be maintained in electronic ledger.|
Pros and cons of RoDTEP over MEIS
Pros of RoDTEP:
1. The RoDTEP Scheme aims to refund all those taxes and levies which are presently disallowed, for example:
- Central & state taxes on the fuel (Petrol, Diesel, CNG, PNG, and coal cess, etc.) used for transportation of export products
- The duty levied by the state on electricity used for manufacturing
- Mandi tax levied by APMCs
- Toll tax & stamp duty on the import-export documentation
2. Tax assessment is set to become fully automatic for exporters.
3. Exporters will enjoy lower rates of interest on capital loans, higher insurance cover, financial incentives on exports
4. Increased loan availability for exporters and provision of credit at reduced interest rates to MSMEs
5. The MoF will be working towards reducing the clearance time at airports and ports decrease delays in exports. Exporters will be able to monitor the clearance status real-time via a digital platform.
Cons of RoDTEP:
Since the RoDTEP scheme will be strictly based on the input taxes paid by various sectors, including on fuel and electricity, the rates of refund for sectors where the incidence of such taxes is low, will be much less than what these sectors enjoy under the MEIS scheme. For example, sectors like textiles, which do not have incidence of taxes on fuel, will have lower rates under RoDTEP than the engineering goods sector, especially steel and alloys, where the incidence of such taxes is higher.
Since the incentive rates are not fixed, it is somewhat early to comment on the RoDTEP Scheme. Implementation of the scheme would make India a WTO-compliant exporter in the international market and the process that is promised by GOI seems to be a simpler and more transparent one for exporters, improving efficiencies in collection of refunds as well. However, the question of applicable rates remains open as of now, which may well form the crux of exporters' concerns about the change.
Originally published by Asit Mehta & Associates, September 2020
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