G. Srinivasan

Exporters hope that the government would recast the extant DEPB scheme to retain its basic thrust of neutralising cumulative indirect taxes while promoting exports.

New Delhi , April 7

STUNG by escalating transaction costs and harassment by tax authorities, who have reopened past cases on export promotion schemes, exporters are not looking forward to any dramatic policy support in the Annual Supplement to the Foreign Trade Policy (FTP), other than keeping their fingers crossed so that their ground level grievances are addressed adequately.

A cross-section of exporters told Business Line, on the eve of the FTP's release by the Union Commerce and Industry Minister, Mr Kamal Nath, here on Friday, that even as the country's exports for fiscal 2004-05, which ended on March 2005, were poised to cross the $75-billion mark, it was also the worst year for many of them.

They saw their competitive edge blunted in the export markets, on account of circumstances partly contributed by policy inertia and a lack of understanding between the Government's finance and commerce arms.

The exporters recalled that the five-year New Foreign Trade Policy (NFTP), announced in August 2004 by the UPA Government, focused on unshackling controls, simplifying procedures, bringing down transaction costs and neutralising incidence of all levies and duties on inputs used in export products.

But it is precisely on these objectives that the tax authorities displayed exemplary apathy, resorting to taxing benefits derived from the Duty Entitlement Passbook Scheme (DEPB) retrospectively for over seven years and also reopening the issue of negative profits.

According to the exporters, the basic issue to be thrashed out is what constitutes `negative profits.' Whether the negative profit is to be calculated after adding export incentives with profit directly derived from exports, or `negative profits' meant if there is a loss in exports excluding export incentives.

They contend that in today's fiercely competitive market, it is only export reimbursements from the government, which provides some surplus particularly to small and medium enterprises (SMEs), that form the fulcrum of the country's exports. The export reimbursements are for purchase of material and inputs and, as such, exert a direct reduction in purchase cost.

Independent research bodies such as the NCAER estimate that value-wise the DEPB scheme serves 52 per cent of Indian exports and has emerged as the most popular export promotion scheme because of its simplicity and ease of operation.

As the exporters face multiplicity of tax burdens in their production chain and since the DEPB scheme is not WTO-compatible, the exporters hope that the government would recast the extant DEPB scheme itself to retain its basic thrust of neutralising cumulative indirect taxes while promoting exports. The idea is that since remission of prior stage cumulative indirect taxes levied on inputs is not deemed a subsidy, the new scheme would aim at this key objective.

As the DGFT Mr Chacko has said on several occasions that the "successor" to the DEPB would be an "equally exporter-friendly instrument," the exporters are optimistic that the Commerce Ministry would explore the idea of putting in place a WTO-compliant instrument of remissions that would take due account of unrebated taxes at various levels. The exporters have been reassured time and again that the government is keen on a scheme that retains the essential elements of DEPB which also enable exporters to get the benefit of 10 to 12 per cent unrebated taxes.

In the case of no viable alternative to DEPB emerging in the short term, the existing DEPB would continue, but the exporters seek relief from the harassment of tax officials at the field level by suitably incorporating "DEPB" into Section 28 of the Income-Tax Act through Finance Bill, 2005, so as to render it effective retrospectively from April 1, 1997.

While the 2004-09 FTP identified agriculture, handlooms, handicrafts, gems and jewellery and leather exports, the annual supplement might zero in on marine product export from India which has been in the doldrums with such exports during April-December 2004, plunging to $938.88 million as against $1031.17 million in the corresponding months of 2003. Besides, marine product exports also suffered some rejection particularly in the European Union, warranting a leg-up to the sector in terms of quality and sanitary standard certifications.

More flexibility to interpreting the provisions of the Export Promotion Capital Goods (EPCG) schemes and extending the same beyond agriculture to other primary sectors and launching of the Target Plus scheme announced in the FTP 2004 would also be expected in the annual supplement, besides some follow-up fillips to service exporters for whom a separate export promotion council was announced in the FTP.

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