The Indian Government has resolved to limit export incentives under the Merchandise Exports from India Scheme (MEIS) at Rs. 2 crore per exporter for outbound shipments made during September-December 2020.
Details of the Decision
The imposed ceiling is structured to undergo a downward revision, ensuring that the total claim does not surpass the allocated Rs. 5,000 crore for the specified period. Furthermore, new Import Export Code (IEC), obtained on or after 1st September, will be disqualified from submitting any MEIS claim for exports. The IEC, a 10-digit code with lifetime validity, is issued by the Director General of Foreign Trade (DGFT) – Ministry of Commerce and Industry. This essential permit empowers importers to import goods and likewise, allows exporter merchants to avail benefits from DGFT for the export scheme.
Rationale Behind the Government’s Decision
The move was triggered by the fact that MEIS is not compliant with the World Trade Organisation (WTO) standards. Therefore, phasing out MEIS will create room for the introduction of a new scheme. In response, the Indian government has announced a new WTO-compliant scheme known as Remission of Duties or Taxes On Export Product (RoDTEP), which will commence on 1st January 2021, replacing MEIS.
About the Merchandise Exports from India Scheme (MEIS)
Launched in April 2015 as part of the Foreign Trade Policy (FTP) 2015-20, the MEIS aimed to counterbalance infrastructural inefficiencies and related costs in exporting locally produced or manufactured goods, including those by the MSME Sector. Under this scheme, the government provides duty benefits depending on product and country. Duty rewards under the scheme are payable as percentage of the realized free-on-board value (2%, 3%, and 5%) and MEIS duty credit scrip can be transferred or used for payment of various duties, including the basic customs duty.
The New Remission of Duties or Taxes On Export Product (RoDTEP) Scheme
This completely automated route for Input Tax Credit (ITC) in the GST will commence from 1st January 2021 with an intention to boost exports in India. It will reimburse all taxes, duties and levies charged at the Central, State or Local level, which are currently not refunded under any of the existing schemes but are incurred during the manufacturing and distribution stages. The rates under RoDTEP that will permit reimbursement of all embedded taxes, including local levies paid on inputs by exporters, will be finalized by a committee led by ex-commerce and home secretary GK Pillai.
Concerns About the New Scheme Replacing MEIS
The switchover has triggered concerns due to a lack of adequate data. Challenges include frequent local lockdowns that affect the provision of the necessary data, non-availability of transportation, and non-functioning of auditors. The Federation of Indian Export Organisations (FIEO), an Apex body representing Indian entrepreneurs in the global market established in 1965, is of the opinion that sudden changes would have financial impacts on exporters as buyers are unlikely to adjust their prices upwards.
The Way Forward
The continuance of the MEIS Scheme until March 2021 is anticipated to facilitate a seamless transition to the RoDTEP scheme. However, there are concerns that the sudden enforcement of a Rs. 2 crore per IEC cap on MEIS benefits on exports made during 1st September to 31st December 2020 may adversely affect exporters. Therefore, a review of the imposition of the cap is necessary.
