NEW DELHI : The government is looking to overhaul a new-look tax rebate scheme for exporters merely eight months after launch, two officials aware of the matter said, after complaints from the industry that the scheme is eroding their margins.
The Rebate of State and Central Taxes and Levies (RoSCTL) scheme, introduced in October, provides rebate against taxes and levies already paid by exporters on inputs. The rebate is not given as cash but as tradeable scrips, which exporters can sell to importers. Importers can then use these scrips to pay customs duty, instead of paying in cash. However, exporters complain these scrips are trading at a steep 20% discount, defeating the purpose of the scheme.
As of now, these scrips can be traded even before export realization, with the liability falling on importers. The government feels the scrips are trading at a discount because of this risk component, and plans to make them tradeable only after full export payments are received, which would eliminate the risk factor. It is also likely to double the eligibility of these scrips to 24 months from 12 months now.
“We are aware of the issues faced by exporters under the RoSCTL scheme and the fact that they are unable to fully benefit from the scheme. We are analysing the reasons and discussing options to address these. Suitable changes will be made in the current scheme after consultations and review,” a government official said on condition of anonymity.
Another official said one of the options is to allow transfer of scrips only after export realization, to address the issue of liability falling on importers who buy these scrips.
“If the trading happens only after export realization, the eligibility period of the scrip could be increased from 12 months to 24 months. That way, the government’s outgo would also get spread over two years,” he said.
The Apparel Export Promotion Council (AEPC), in a statement, said the scheme in its current form is eroding export margins of the domestic textile industry. Garment units say they are facing losses of ₹1,200 crore with the discount on tradeable scrips rising from 3% to about 20%, benefitting importers who are taking undue advantage at the cost of exporters.
Representatives from the Federation of Indian Export Organisations, an apex body of exporters, met finance minister Nirmala Sitharaman a couple of weeks ago to request changes to the RoSCTL scheme.
Ajay Sahai, Director General and CEO, FIEO, said the government is looking into the issue and it is likely to be resolved soon. “It is logical to allow trading after export realization. That way, the government will not even have to monitor the foreign exchange. Scrips should not be allowed prior to realization,” he said. Exports payments are generally realized in two to three months.
In a letter to Textiles Secretary U. P. Singh, AEPC Chairman Naren Goenka said the main objective of the scheme was to refund embedded central and state taxes and levies in the value chain to exporters. However, the implementation of the scheme in terms of disbursement of the rebate in the form of scrips as against cash refunds has caused “undue difficulties to exporters”.
AEPC said as the state and central levies are collected in cash, reimbursement or rebate on such levies should also be made in cash. The letter also flagged that the scrips are being traded at discounts of 15-20%, because of which exporters are not getting the intended value under the scheme. “Because of this, importers are reaping all advantages of the scheme at the cost of exporters,” said the letter,. Goenka recommended that the provision in the scheme that makes the importer or the buyer of the scrip liable for non-realization or excess availed of by the exporter should be scrapped.
“The said provision should be deleted for the already existing scrubs. It is suggested that a mechanism may be worked out whereby the scrubs already issued can be endorsed, based on the exporter submitting proof of realization of export proceeds,” said the letter.