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Export sops on FM?s drawing board

One proposal doing the rounds is to impose an upper ceiling on export benefits to 50% of actual customs duty realisation.

india Updated: Feb 23, 2006 12:49 IST

A host of export support and duty neutralisation schemes may come under review in Finance Minister P Chidambaram’s budget next week.

Finance Ministry officials hinted that export sops revamp would be done to curtail the revenue leakage and rationalise the benefits to exporters being provided by the government.

One proposal doing the rounds in Finance Ministry is to impose an upper ceiling on export benefits to 50 per cent of actual customs duty realisation in a financial year.

Another plan is to rejig the schemes like Target Plus on which Commerce Ministry is already working to plug the leakage and misuse by exporters.

The Finance Minister in consultation with Commerce Minister Kamal Nath may announce the roadmap for making export sops WTO-compliant.

However, Chidambaram will have to leave enough flexibility for Kamal Nath to rework the export support schemes which is likely to be done in the External Trade Policy later next month.

Sources said that the revamp in export sops had been necessitated as drawbacks and duty neutralisation had crossed Rs 24,850.12 crore during April–November 2005. This constitutes about Rs 58.8 per cent of the total customs revenue mobilisation that has touched Rs 42,262 crore in the same period.

In the total indirect taxes mobilisation of Rs 119679 crore during first eight months of this fiscal, the drawbacks and withdrawals by exporters amounted to 21 per cent.

In 2004-05, the export support schemes have cost the government a staggering Rs 41,325.56 crore.

Target Plus scheme where Rs 8,000 crore support is provided to exporters will be the target of Finance Minister. Revenue Department, Enforcement and Revenue Intelligence units have apparently provided inputs to plug the leakage in government funds and misuse by exporters.

Commerce Minister Kamal Nath has already asked the exporters at the open house meetings organised by Federation of Indian Exporters Organisations (FIEO) to come up with ways and means to plug the loopholes in the Target Plus. The PMO, according to sources, is in favour of scrapping the scheme in toto.

Of the total withdrawals made during the first eight months in 2005-06, exporters garnered Rs 9,226.25 crore on advance licences while 100 per cent export-oriented units, software technology parks and export promotion zones got support worth Rs 5,076 crore.

During the period, drawbacks alone have been pegged at Rs 2,229 crore while exporters accrued Rs 3,763.64 crore through the Duty Entitlement Pass Book (DEPB) scheme which is also being overhauled to make it WTO-compliant. Duty replenishment schemes have cost the exchequer about Rs 900 crore.

While Finance Ministry is toying with the idea of capping the export benefits to 50 per cent of customs duty mobilisation, Commerce Ministry is not particularly happy with this move.

The Udyog Bhavan argument is that “in no country, taxes are exported”. And, hence, there cannot be an upper ceiling imposed on the export benefits.

A compromise will have to be worked out by PMO with Finance and Commerce Ministries being at loggerheads on the issue.

Ripe for revamp:

The Finance Minister may announce the roadmap for making export sops WTO-compliant Revamp in export sops had been necessitated as drawbacks and duty neutralisation had crossed Rs 24, 850.12 crore during April-November 2005. While Finance Ministry is toying with the idea of capping the export benefits to 50 per cent of customs duty mobilisation, Commerce Ministry is not particularly happy with this.

First Published: Feb 23, 2006 12:49 IST