Enabling exports

Taxes paid by exporters should be refunded swiftly

The government has announced a new scheme that aims to reduce the tax burden on exporters — the Remission of Duties and Taxes on Exported Products, or RoDTEP. This, together with the Rebate of State and Central Levies and Taxes (RoSCTL) scheme, which focuses on textiles, is the latest attempt to intervene in the export market and increase Indian exports’ competitiveness. While better structured than previous efforts, the schemes nevertheless may founder on flaws in both conception and implementation. Export competitiveness should be addressed through both improving the regulatory and business environment in India, as well as through further simplifying and unifying the tax system. The addition of greater complexity to the tax and rebate system is not a sustainable way forward.

The purpose of these schemes is to provide exporters with rebates on the local and other taxes and duties not included in goods and services tax (GST). Exporters are already able to seek refunds of their GST payments. Under the RoDTEP and related schemes, each sector will also be allotted a fixed proportion of value — or a per unit sum — that they will be able to recover from the government as rebate. The idea is that the taxes exporters pay on the fuel required for freight, electricity consumption, or at agricultural mandis, should also be refunded. While this desire is obviously understandable, the fact remains that intervention of this granular nature — there are 8,555 products included in the RoDTEP scheme, with reimbursement rates that vary from 0.3 per cent to 4.3 per cent, in addition to various per unit rebates as well — is difficult to manage and administer. It also opens the door to lobbying by export sectors, some of which is already in evidence as industry associations complain that RoDTEP rates work out to less compensation than they were receiving under the earlier Merchandise Exports from India Scheme (MEIS).
 

The additional reason the government had to go in for the RoDTEP to replace the MEIS is that tax rebates are compliant with India’s commitments to the World Trade Organization, while export incentives are not. This is yet another occasion when a problem that calls for simplification has instead been addressed by the government through greater intervention and new bureaucratic procedures. Will each of these 8,555 products have its administered rebate rate altered when the respective industry’s cost structure changes? Does the government have the capacity to make these changes swiftly, transparently, and justifiably? And, finally, is the Rs 12,454 crore set aside for the RoDTEP scheme enough, or will exporters find themselves unable to claim rebates because money has run out? 

In the past, export incentive schemes and even the standard GST refund have run aground because the government has failed to pay back exporters on time. Speedier refunds themselves would go a long way towards repairing India’s competitiveness deficit. But the most sensible approach to the question of exporting indirect taxes is simply to expand the scope of GST. Fuel taxes, electricity duties, and so on that the RoDTEP is supposed to be compensating for also break the GST chain in general and lead to cascading inefficiencies in the system. If they were part of the larger indirect tax system, and exporters could claim swift refunds on them through the existing mechanisms, there would be no need for complex and expensive counter-productive efforts like the RoDTEP.