Sharp cut in tax refund rates to affect jobs, exports

Upset over sharp reduction in the rates of duty drawback, or tax refund, exporters today said the move will have adverse impact on employment in sectors like apparel, leather, handicraft and metal.

"Reduction of drawback for apparel, leather, metal handicraft, carpets, certain engineering products will have a bearing on employment," said A Sakthivel, President of Federation of Indian Export Organisation (Fieo).
    
On Saturday, the Central Board of Excise and Customs (CBEC) slashed rates of duty drawbacks -- refund of import duties on raw materials used in exports -- by up to 30 per cent for several items.
    
The new rates are effective from tomorrow.
    
"Reduction in rate will further affect the exports of sectors which are showing negative or single digit growth," Fieo chief said.
     
Although, the country's exports have risen by 28.6 per cent between April-August this fiscal, certain segments like garments, handicrafts, handloom and carpets, are yet to pick up from the setback received during the global downturn of 2008-09.
    
Exports from these labour intensive sectors have been severely impacted due to fragile demand recovery in major markets like the US and Europe.
    
Duty drawback rate for cotton garments has been reduced to 7.5 per cent against the present rate of 8.8 per cent.
    
For blended garments -- containing cotton and manmade fibre, the revised drawback rate is 8.6 per cent, down from 9.8 per cent.
    
In a letter to Finance Minister Pranab Mukherjee, Chairman of Export Promotion Council Premal Udani has said: "Recession for readymade garment sector is far from over. The industry is reeling under unprecedented price rise of its basic materials like raw cotton, cotton yarns and fabrics. A contraction of exports means loss of jobs".
    
However, the CBEC said "The drawback rates have been determined on the basis of certain broad parameters, like the prevailing prices of inputs...And the incidence of service tax".
    
Duty drawback has been reduced in other sectors also.
    
For leather and leather articles, the rate has been reduced by 5-15 per cent, in bicycle and sports goods, 9-20 per cent and articles of iron and steel by 25-30 per cent.
    
In case of stainless steel utensils and cutlery, the refund rate has been slashed from 12.5 per cent to 8.8 per cent.