A suggestion to promote exports

EXPERT EYE

A blanket exemption in Customs can promote export without having too many complications that plague many of the export promotion schemes that crowd the columns of policy books. There is every justification to have a blanket exemption in Customs for goods imported for manufacture of goods to be exported.

If the Ministry of Finance wants to ensure that only neutralisation of duty takes place, and no subsidy is given, then this is a good method to neutralise the customs duty paid on imported raw-materials which are used in the manufacture of goods that are finally exported. This has the benefit of being amenable to implementation without much of a formality and it is easy to administer by the Ministry of Finance alone.

There are a large number of export-oriented schemes such as Drawback, Duty Entitlement Pass Book (DEPB), Export Promotion Capital Goods (EPCG), Advance Authorisation Scheme (DEEC), Duty Free Import Authorisation Scheme (DFIA), Rule 18 & 19 of Central Excise Rules and many more.

The idea is to relieve the goods of the burden of indirect tax. None of the schemes officially gives any subsidy, though DEPB actually does. WTO permits only zero rating of export goods. For that purpose, only for customs duty, a very straight forward blanket exemption in customs can serve the purpose. The modality will be the following:

In Customs Tariff, there are already exemptions for allowing duty free import for manufacture of goods for indigenous market on the fulfilment of condition No. 5 that is as follows: "If the importer follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty for manufacture of Excisable Goods) Rules, 1996."

These Rules provide that the importer has to declare and give a bond to the Central Excise Officers in control of the factory where the manufacture takes place. The officers have to be shown proof that the goods have actually been manufactured. One existing example is relating to bulk drugs imported and used in manufacture of life saving drugs or medicine sold domestically.

All that I am suggesting is to extend the same procedure for export also. The manufacturer will be required to follow the same existing SION, fixed by the Commerce Ministry and satisfy the Central Excise Officers that the goods have been exported to the extent manufactured on the basis of this SION. The manufacturer has only to show the shipping bills after export to the factory officers, who would then discharge the bond.

Thus, by merely extending the existing system of end use exemption to the exporters, the same purpose would be achieved which is now done by granting licence and following other formalities in DEEC scheme (now Advance Authorisation).

So, the Advance Authorisation and the DFRC (now Replenishment Licence) can be abolished as they will be superfluous. This will be a simple scheme solely operated by the Department of Revenue. Exporters do not have to switch between the finance and commerce ministries.

This scheme, however, does not replace other schemes such as DEPB or Drawback because the latter are for both Customs and Excise duties together. The proposed exemption is only for Customs duty.

Being an optional scheme, it benefits only those who want to avail of it. Established manufacturers-cum-exporters could take advantage of this exemption and Rules 18 or 19 of Central Excise Rules which will cover all the duties. So, this suggestion should be given a fair trial in this year's Budget.