New duty scheme to cap outgo at Rs 10,000 cr

The revenue outgo for the government under the new duty reimbursement scheme to replace the popular Duty Entitlement Passbook Scheme is proposed to be capped at Rs 10,000 crore per year.

The outgo under the existing scheme is over Rs 11,000 crore per year. The proposal for the new scheme is now expected to be vetted by Prime Minister Manmohan Singh.

The Committee of Secretaries (CoS), which recently cleared the scheme, has asked the commerce and industry ministry to ensure that the revenue foregone under the new scheme does not cross Rs 10,000 crore in any financial year.

Government officials told Business Standard that the CoS was also of the view that since the Centre would reimburse exporters for state levies, the states should be asked to phase out such levies over a period of time. "The thinking is that levies should not be exported. Since the centre will pay for such levies, states could tend to enhance the level of the levies," an official said.

Officials said the CoS had approved the model of the new scheme as proposed by the commerce and industry ministry. As per the proposal, the levies will be reimbursed by the Centre and later readjusted against various grants given to the states.

The finance ministry did not favour reimbersing of state levies. It had suggested that the burden of such levies could be borne by the exporters. As per the recommendations of the National Council of Applied Economic Research (NCAER) the new scheme will essentially cover three duties. The electricity duty, the cost of fuels such as petrol, high speed diesel used in the captive power plants and the inter-state duty paid as Central Sales tax.

While there was agreement that reimbursement of cost of fuels and the CST would be borne by the Centre, there were differences between finance and commerce ministries on who should reimburse the electricity duty. Reimbursement under the new scheme would also be higher for non-VAT states compared with the rest, since the non-Vat states would not have the benefit of obtaining input credit under the VAT.

Commerce and Industry Minister Kamal Nath has already written to Prime Minister Manmohan Singh to extend the existing DEPB scheme by a year since the revenue department notification effecting the scheme is valid only till September 30. The extension is being asked for so that there is ample time for exporters to switch to the new scheme.