The Ministry of Commerce and Industry has recently announced the tax refund rates under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme for 8,555 products for the Fiscal Year (FY) 2021-22. This move is significant as it represents a concrete step towards making India’s exports more competitive in the global market.
About the RoDTEP Scheme
The RoDTEP scheme aims to refund exporters for central, state, and local duties or taxes that are not currently rebated or refunded. These non-rebated duties or taxes were previously placing India’s exports at a disadvantage. However, the scheme does not offer rebates for duties and taxes that are already exempted, remitted or credited.
The Launch of RoDTEP Scheme
This scheme was initiated in January 2021, replacing the Merchandise Export from India Scheme (MEIS), which was not adhering to the World Trade Organisation’s rules. The earlier MEIS scheme offered additional benefits of 2% to 7% on the Freight On Board (FOB) value of eligible exports, a practice contrary to WTO norms. As per these norms, a country cannot provide export subsidies like MEIS if its per capita income is above 1000 USD. India crossed this threshold in 2017 and subsequently had to develop a new WTO-compliant scheme.
Exclusive Scheme for Garment Exporters
Garment exporters have a separate scheme named Rebate of State and Central Levies and Taxes (RoSCTL) Scheme.
Tax Refund Rates Under RoDTEP
The tax refund rates under this scheme vary, ranging between 0.5% to 4.3% across different sectors. Exporters need to claim the rebate as a percentage of the FOB value of exports.
Issuance of Rebates
The rebates will be granted in the form of transferable duty credit/electronic scrip (e-scrip), which will be managed in an electronic ledger by the Central Board of Indirect Taxes and Customs (CBIC).
Significance of RoDTEP Scheme
This scheme is designed to enhance India’s competitiveness in global markets. It will do this by reimbursing taxes such as duty on power charges, Value-Added Tax on fuel in transportation, Farm Sector, etc. The scheme also brings Indian exporters up to international standards by offering affordable testing and certification domestically. It is also set to make tax assessments fully automatic for exporters, leading to increased economic activity and working capital for enterprises.
Concerns with RoDTEP Scheme
Despite its benefits, the scheme has been criticised for its relatively lower rates compared to the previous MEIS scheme, and lesser budget allocation. Critics argue that it does not account for taxes embedded in raw materials like steel used in engineering products. There are also concerns that major export sectors like steel and pharma, and exports made under Advance Authorisation, EOU (Export oriented unit), SEZ (Special Economic Zone), etc., will not benefit from the scheme. This could negatively impact the competitiveness of Indian exports.
Understanding Freight on Board (FOB)
Freight on Board or Free on Board is a shipping term indicating liability for goods damaged or destroyed during shipping. “FOB origin” means the buyer assumes risk once the seller ships the product. “FOB destination” indicates that the seller retains the risk of loss until the goods reach the buyer. FOB terms significantly affect the buyer’s inventory cost as liability for shipped goods increases inventory costs and reduces net income.