FBT rebate plan on exports held up

Finance ministry shoots down commerce ministry's proposal.

Even as sharp differences between the commerce and finance ministries continue to hold up notification of small special economic zones, the revenue department has shot down the commerce ministry's recent announcement to rebate fringe benefit tax on exports.

Officials told Business Standard that Revenue Secretary KM Chandrasekar had written to Commerce Secretary SN Menon that rebate of the FBT was not feasible as the burden of this tax could be passed on by the exporter to his employees.

The commerce ministry is now planning to contest this response by pointing out that the FBT is a direct tax borne by the exporter and should be rebated as it affects his competitiveness.

Commerce and Industry Minister Kamal Nath had in the annual supplement to the foreign trade policy announced earlier this month said, "The incidence of un-rebated service tax and the FBT on exports will be factored in the various duty neutralisation and remission schemes."

The revenue department is, however, willing to consider rebate of service tax on exports. The revenue secretary has said a mechanism could be worked out to rebate incidence of the tax. Officials said the two ministries were examining an option to reimburse the service tax component through the duty drawback and the duty entitlement passbook schemes.

Another announcement of the policy pertaining to a new scheme called "Focus Market Scheme" will, in the first year of its implementation, be restricted only to the Latin American market. This is being done following concerns raised by the revenue department on loss of revenue under the scheme.

The scheme allows duty credit facility at 2.5 per cent of the FOB (freight on board) value of exports of all products to the notified countries. The scrip in the scheme is freely transferable.

The scheme will also cover only those markets where India's exports are less than $200 million per year. Going by the export data compiled by the directorate-general of commercial intelligence and statistics, this will mean exclusion of countries like Brazil, Columbia, Mexico and Venezuela from the purview of the scheme as exports to these countries are worth more than $200 million.

Officials said the commerce ministry was in talks with the revenue department for inclusion of all Latin American countries under the scheme as the four countries were lucrative destinations for Indian exports.