Rs 5,000 cr tax sops in please-all trade policy

Govt aims at 1.5% share of World Trade by 2009; 100% FDI in free Trade Zones.

Commerce and Industry Minister Kamal Nath unveiled incentives for five employment-intensive sectors, relaxed import norms for capital goods and gave service tax exemptions for exports in an attempt to achieve an ambitious 1.5 per cent share of the global trade by 2009 against 0.8 per cent now.

The tax incentives, announced in his maiden Foreign Trade Policy for 2004-09, were estimated to cost the exchequer nearly Rs 5,000 crore annually, revenue department officials said.

Officials said, Target Plus, a scheme of duty credits for exporters who crossed the annual target by 4 per cent, would cause the maximum outgo.

For incremental growth of over 20 per cent, the duty credit under the scheme has been fixed at 5 per cent, for 25 per cent growth the credit will be 10 per cent and for 100 per cent incremental growth the credit will be 15 per cent of the free on board (FOB) value. 
 

Trading gains

• Service tax exemption for all exporters.
  
• Import curbs lifted on 41 items, including 31 agricultural products 
  
• No age restriction on second-hand capital goods imports
  
• Validity of all licences/entitlement increased from six months to 2 years
  
• No bank guarantees for exporters with good track record and minimum turnover of Rs 5 cr.

For the services sector, Nath announced a "served for India" scheme and set up the Services Export Promotion Council. Also, individual exporters earning over Rs 5 lakh in foreign exchange and others earning above Rs 10 lakh will be eligible for duty credits equal to 10 per cent of their earnings.

To simplify procedures and reduce transaction costs, the policy has announced initiatives like extending the validity of all licences and entitlements to two years "" instead of six months at present. Also, exporters with a good track record and a minimum turnover of Rs 5 crore have been exempted from bank guarantees.

The focus on five sectors "" agriculture, gems and jewellery, leather and footwear, and handloom and Rs 5,000 cr tax sops in please-all trade policy handicrafts"" is in line with the thrust of the National Common Minimum Programme.

Nath announced a Vishesh Krishi Upaj Yojana for exports of fruits, vegetables, flowers and minor forest produce, under which exports will qualify for duty-free credit entitlement equivalent to 5 per cent of the FOB value of exports. Similar benefits have also been extended to the four other sectors.

The minister said the government would allow duty-free import of capital goods for agriculture exporters and would permit 100 per cent foreign direct investment for free trade and warehousing zones. The zones will have a minimum capital requirement of Rs 100 crore and 500,000 square metres of built-up area.

"The aim is to create trade-related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in free currency," Nath said, while elaborating on the free trade and warehousing zones.

The minister also announced a new special economic zone for handicrafts and 100 per cent export oriented unit benefits for biotechnology parks.

Export oriented units have been permitted to retain their entire export earnings in the Export Earner's Foreign Currency Accounts and import capital goods on a self-certification basis. Units in the domestic tariff area converting into EOUs can now avail of income tax benefits on plant and machinery as part of an exercise to make EOUs at par with units in SEZs.

The government also lifted the age restrictions on import of second hand capital goods and allowed transfer of capital goods to group companies and managed hotels under the Export Promotion Capital Goods (EPCG) scheme. This concession is expected to benefit large corporate houses like Reliance Industries, ITC, East India Hotels and the Tata group.

Export obligation norms for specified projects will now be calculated on concessional duty permitted to them. The move is aimed at improving their viability.

The popular duty entitlement pass book scheme has been continued for the time being. Nath indicated that it will be merged with the duty drawback scheme in due course.

Nath also said that the Board of Trade, so far headed by the commerce minister, would be restructured with an eminent person as its head and with a new mandate. Delhi's Pragati Maidan is also proposed to be renovated and turned into a convention centre at an estimated cost of Rs 1,164 crore.

The threshold limit for Towns of Export Excellence has been reduced from Rs 1,000 crore to Rs 250 crore. Common Facility Centres at the state and district levels are proposed to promote services exports by home-based professionals.

Status holders and star trading houses have been reclassified into five categories with the lowest starting at Rs 15 crore export earning over a period of three years. 

Target Plus may lead to revenue loss

The new Target Plus scheme announced in the Foreign Trade Policy today may lead to a sharp rise in circular trading in the guise of increasing exports. Officials said this could result in revenue losses.

The scheme has given incentives for achieving higher exports without any linkage to the volume of imports. For instance, an exporter, with a turnover of Rs 500 crore in the last fiscal, imports inputs worth Rs 1000 crore in 2004-05. He can claim credit for 100 per cent export growth by re-exporting the imported goods even with a nominal value addition.

Under the new scheme, the exporter will be eligible for an incentive of up to 15 per cent on the incremental value of his exports. This will translate into a reward of Rs 75 crore on a nominal value addition.

Trade experts said with no value addition norms in place, it would amount to circular trading since there were no checks on what constituted an export and could create a problem for the government in the long run.

Revenue department officials said they had asked the commerce ministry to exclude high value items like jewellery from the scope of the scheme.

The commerce and revenue departments had earlier blocked such a scheme proposed by a section of industry.