The finance ministry made known recently that since the government is incurring a loss of INR 8,000 crore on account of the tax rebate
DEPB scheme each year, it will not be extended beyond June 30th 2011.
While the decision would help the government prop up its revenues, India's business fraternity has taken a dim view of the move, expressing fears that it would make exports uncompetitive and severely impact the economy's growth momentum.
Confirming that the DEPB scheme would be discontinued from June 30th 2011, Mr Sunil Mitra revenue secretary justified the rationale behind the move, saying that the government was rewarding exports on one hand and losing revenue on the other.
Very popular among exporters, especially in the engineering and automobiles sectors, the Duty Entitlement Pass Book scheme provides for refund of duties on import content of export products. The government has been trying to phase out the scheme for the past few years due to the perception that the 14 year old tax refund mechanism was non compliant with the World Trade Organisation rules.
DEPB is thought to be non compliant with WTO because the tax refund is not based on the actual import content and hence tax of the export product, but on certain assumptions. This gives the importing country the pretext to challenge and neutralize the benefit of imposing countervailing duties on imports from India.
The government says that DEPB recipients should now avail of duty drawback and other similar tax remission schemes.
Meanwhile, the CII in a statement warned that withdrawal of the scheme would result in a serious blow to the exports growth momentum achieved in the last few quarters.
Dr Rahul Khullar commerce secretary had recently remarked that there was merit in the Finance Ministry's contention that when exporters were doing so well where is the need to continue sustaining them by throwing money at them? He said exporters could always enjoy tax rebates through other windows like the duty drawback scheme.
A moot point, however, is that rates of refund in the duty drawback scheme are much lower than those available under the DEPB scheme.
Source : steelguru.com