The Indian government introduced the Remission of Duties and Taxes on Export Products (RoDTEP) scheme to enhance export competitiveness. However, sectors such as iron and steel, chemicals, and pharmaceuticals have been omitted from this scheme. The reasons cited include that iron and steel are ‘already booming’ and the pharmaceutical industry’s business has surged during the pandemic.
Understanding the RoDTEP Scheme
Launched in January 2021, the RoDTEP scheme replaced the Merchandise Export from India Scheme (MEIS), which was non-compliant with World Trade Organisation rules. Unlike the MEIS scheme that offered additional benefits of 2% to 7% on the Freight On Board (FOB) value of eligible exports, the RoDTEP scheme refunds exporters the embedded central, state and local duties or taxes which were until now not rebated or refunded, giving Indian exports a disadvantage.
The rebate under RoDTEP is not available for duties and taxes already exempted or remitted or credited. The tax refund rates under RoDTEP vary between 0.5% to 4.3% across different sectors, claimed as a percentage of the FOB value of exports.
Operational Mechanism of RoDTEP
Under the RoDTEP, rebates are issued as transferable duty credit/electronic scrip (e-scrip) maintained in an electronic ledger by the Central Board of Indirect Taxes and Customs (CBIC). Additionally, the government had separate provisions for garment exporters via the Rebate of State and Central Levies and Taxes (RoSCTL) Scheme.
The Significance of the RoDTEP Scheme
The RoDTEP scheme reimburses taxes such as duty on power charges, Value-Added Tax on fuel in transportation and so on, making Indian products more competitive in the global marketplace. This policy is expected to impact India’s competitiveness, trade flows, and export numbers over the next 5-10 years positively.
Conformity with International Standards
Affordable testing and certification will be made available to exporters within the country, enabling them to meet international standards for exports. This provision not only boosts the economy but also increases the working capital for enterprises as they no longer need to rely on international organizations.
Automation of Tax Assessment
RoDTEP has provisions for fully automatic tax assessment for exporters. Businesses can now access their refunds for Goods and Services Tax (GST) through an automatic refund route.
Understanding Freight on Board
Freight on Board (FOB), also known as Free on Board, is a term determining who is liable for goods damaged or destroyed during shipping. In FOB origin contracts, the buyer assumes risk and ownership of goods once the seller ships the product. On the other hand, FOB destination implies that the seller retains the risk of loss until the goods reach the buyer. These terms affect the buyer’s inventory cost, where liability for shipped goods increases inventory costs and reduces net income.
