Finmin rejects a plan to broaden the export tax credit system

According to official sources, the finance ministry has rejected a commerce ministry proposal to broaden the scope of the flagship tax remission scheme-RoDTEP-for exporters to include industries that are now excluded from its reach. Steel, pharmaceutical, and chemical exporters are not eligible to participate in the Remission of Duties and Taxes on Exported Products (RoDTEP) system.

“Given the limited resources, the revenue department believes that the request for further RoDTEP allocation cannot be allowed.” “There are significant regions and initiatives that demand higher appropriations more immediately, which the finance ministry must investigate at this point,” one of the individuals said.

The commerce ministry recommended expanding the remission program in response to industry requests that all industries receive the RoDTEP advantage to make exports truly “zero-rated” in line with worldwide best practices.

This plan provides qualifying exporters with reimbursements ranging from 0.3% to 4.3% of the freight-on-board value of their exported items.

For the current fiscal year, the government has allocated Rs 13,699 crore for the RoDTEP plan, an increase of 10% over the revised estimate of Rs 12,454 crore for FY22.

Pharmaceuticals, chemicals, and iron and steel exports (which are not included by RoDTEP) totaled $88 billion in the previous fiscal year, representing a 31% increase over the previous year. In FY22, they accounted for nearly 21% of total merchandise exports.

Analysts argue that sustained and adequate tax relief, in addition to structural reforms, will help exporters improve their competitiveness and better equip them to increase shipments at a time when demand from key markets, such as the United States and the European Union, has begun to wane due to an economic slowdown. It is also essential to India’s aspirations to increase goods exports to $1 trillion by FY30 from $422 billion in FY22.

However, because the steel, pharmaceutical, and chemical sectors are dominated by large players, their ability to push exports without government assistance remains far greater than that of small and medium-sized businesses, according to one of the officials. Furthermore, pharmaceutical and chemical exports have fared well in the aftermath of the epidemic, so these industries do not require immediate support, according to the source.

While the federal government’s entire budgeted spending was estimated to be Rs 39.45 trillion in FY23, analysts believe the revised estimate for this fiscal year might be Rs 2.2-2.7 trillion higher. The FY23 Budget projections went crazy when the Ukraine war suddenly erupted, and a surge in commodity prices, particularly fertilizer, on top of the continuation of a free rationing program, significantly raised the government’s subsidy expenditure. While the revenue mop-up is also likely to exceed the FY23 budget forecast, it will be used to cover the increased expenditure promises.

Exporters, on their side, maintain that tax exemption is their legal prerogative and that it is not a government subsidy.

Last year, the government announced the RoDTEP program, which would cover up to 75% of tariff lines, or around 8,555 goods. Although it covers more items (tariff lines) than the Merchandise Exports from India Scheme (MEIS), its yearly financial allocation is less than half of the government’s regular outlay under the MEIS. Of course, neither plan is technically similar, because the MEIS was an incentive program that violated World Trade Organization rules.

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