Tax formula for DEPB emerges

The ministries of finance and commerce are working out a formula to resolve the issue of income tax being charged with retrospective effect on reimbursement schemes like duty entitlement passbook and duty drawback.

Officials told Business Standard that as per the formula, no interest would be charged or penalty imposed on income tax dues of exporters. Also, exporters would be allowed to pay their dues in installments over 3-4 years rather than having to pay upfront, the officials added.

They pointed out that, while the finance ministry was willing to issue the required notification to clear any discrepancy in the matter, it was difficult for the government to notify with retrospective effect and refund amounts already claimed from the exporters.

The commerce ministry wants the word 'DEPB' incorporated in the Income Tax Act to facilitate deduction under Section 80 HHC of the Act with retrospective effect from 1992.

In addition, the ministry has sought the inclusion of the drawback benefit for calculating tax liability under the same Section from 1995.

The revenue department's stand is that income tax benefit under the Section will accrue only when exporters declare profit without taking into account the drawback received.

Commerce and Industry Minister Kamal Nath has already discussed the matter with Finance Minister P Chidambaram and Prime Minister Manmohan Singh.

Meanwhile, representatives of the Apparel Export Promotion Council (AEPC), the Federation of Indian Export Organisation, the Confederation of Indian Apparel Exporters, Synthetic and Rayon Textile Export Promotion Council and the South African Textiles Association today decided to stage a dharna outside the office of Chidambaram on April 19 to protest against government "inaction".

As per industry estimates, 2000 exporters have been affected by the DEPB anomaly. "In most cases, tax authorities are pressing exporters to comply and pay tax. Not only this, the authorities are also opening cases of past years on similar grounds, which could impact 7000-8000 assessments," AEPC said in a memorandum to the government.