Finance ministry wants duty drawback rates to be lowered

The current rates came into force on October 10, 2012. Since then the currency has fallen about 15.5%

The finance ministry is pushing for a cut in duty drawback rates as the realisation of exporters has gone up due to  depreciation of the rupee. Unlike the usual practice, the ministry also wants the new rates to come into effect before October. The demand, made to the Saumitra Chaudhuri committee, has come at a time when exports contracted two months in a row — May and June.

The current rates came into force on October 10, 2012. Since then, the currency has fallen 15.5 per cent, resulting in higher duty refund to exporters.

“Since duty drawback is the percentage of FOB value (freight on board, which includes ex-factory price plus other costs), refunds have gone up,” said a finance ministry official who did not wish to be identified. Drawback on exports means refund of Customs duty paid on imported inputs or payment of excise. Drawback is not a reward scheme and is meant only for neutralisation of duty.

While exporters of some commodities are asking for an increase in drawback rates, arguing the current rates do not correctly measure the hidden taxes, the ministry is planning to rationalise it, keeping in mind the rupee fall. Pulled down by contraction in May and June, India’s exports fell 1.4 per cent in the first quarter of the current financial year at $72.4 billion against $73.5 billion in the corresponding period of 2012-13.

The Duty Drawback Committee headed by Saumitra Chaudhuri, member, Planning Commission, is looking into the issue. The panel, which carries out the exercise every year, is expected to give its report this month. Its recommendations are not binding on the finance ministry.

A member of the committee said the increase in drawback rates, as demanded by the industry, was ruled out because the tax rates had not gone up in the last one year, barring on a few commodities. On lowering the drawback rate, the person said a call was yet to be taken, as it would depend on various factors such as FOB price and input price.

Some of the suggestions made by the finance ministry include introducing the new rates from September and bringing down the excise component in the calculation of duty drawback rates. The issue was also raised during Finance Minister P Chidambaram’s meeting with Chief Commissioners of Central Excise, Custom and Service Tax last month. The drawback committee speaks to traders of various commodities across the country and takes the weighted average of the duty on raw material.