TNC Rajagopalan: Policy changes yet to be notified

EXIM MATTERS

The new foreign trade policy was notified last month end but the finance ministry has not yet issued the notifications to give effect to the new schemes or various chan-ges made to the earlier Exim Policy.

This has raised apprehensions whether the commerce ministry has announced the new schemes and changes without taking the finance ministry into confidence. It is not uncommon that the policy gives certain dispensations but the finance ministry does not extend the benefits at the ground level.

For example, last year the Exim Policy allowed import of "spare refractories, catalysts and consumables" under the Export Promotion Capital Goods (EPCG) Scheme. The relative Customs exemption notification did not allow these items.

So, many EPCG licence holders were unable to get their goods cleared at the 5 per cent concessional duty. Legally, unless the exemption notification explicitly permits, the Customs cannot grant duty concessions.

The new policy talks about a number of tax exemptions. Not all of them are uncontroversial or easy to give effect to. The policy says the income tax exemption will be available to units in domestic tariff area (DTA) that get converted to export-oriented units (EOU) and that even goods supplied by one EOU to another EOU will qualify for the income tax exemption. The policy exempts EOU from the service tax and even allows remission of the service tax on goods and services exported by DTA units.

The policy exempts central sales tax on goods that DTA units supply to the EOU. The announcement has no force unless the finance ministry amends the laws relating to the income tax, service tax and central sales tax.

The commerce ministry has announced direct export subsidy of 10 per cent to service providers (5 per cent to hotels and 20 per cent to stand alone restaurants) besides direct export subsidy up to 15 per cent on their incremental exports for status holders like export houses.

What is worse from the revenue department point of view, the threshold limit for recognition has been brought down to Rs 15 crore in the current plus the past three years. It means even with about Rs 4 crore exports in each of the current and past three years, one can become a status holder.

Even for achieving the reduced threshold limit, double weightage is given to many categories of exporters like small-scale industries, units located in J&K and units having quality recognitions, and many categories of exports (like exports to Latin America).

Apparently, the revenue department is worried that the new policy allows too many status holders to claim too much subsidy by way of duty credits.

The status holders and exporters having the Rs 5 crore export turnover in the preceding year need not furnish bank guarantees under any of the export promotion schemes.

The misuse of and defaults under schemes are rather rampant. Without any tangible security, the Customs will face severe difficulties in recovering duties from a larger number of defaulters.

The finance ministry, hard pressed for revenue, is worried that revenue leakage under the Duty Entitlement Passbook Scheme is rather disproportionate.

So, a view is gaining ground that the commerce ministry has been rather irresponsible in announcing subsidies and facilitation measures that will impact revenue severely.

The delay in issuing notifications only exacerbates the anxieties that the finance ministry may not give effect to many announcements in the new policy.

tncr@sify.com