Government of India’s proposal to replace the Merchandise Export Incentive Scheme (MEIS) with the Remission of Duties or Taxes on Export Product (RoDTEP), as the former was not WTO compliant, seems to have gone down well with most industry players. Now, in a statement released on Thursday, the finance ministry has said that the RoDTEP scheme will be extended to all export goods from Jan 1, 2021. The RoDTEP rates, conditions and exclusions under which it can be availed will be detailed by the department of commerce, based on recommendation of the GK Pillai committee that are expected soon. The industry is hopeful that the duty remission scheme will cover all the actual expenses pertaining to unrebated central and state taxes – electricity duty, mining taxes, levies imposed on fuel, transportation, etc.
The aluminium industry is operating at 90% capacity and is depending heavily on quick RoDTEP implementation since currently 15% of cost of aluminium production is due to unrebated central and state excise duties, the highest in the world. For the automotive industry, the question of global competitiveness is key as the sector exports to over 160 countries with an approximate turnover of USD 27 billion but has less than 2% of the global automotive trade in value terms. This is because of infrastructure inefficiencies and tax costs which are currently in 3-4% range. Even for the auto sector, RoDTEP will have a great positive impact as it is aimed at refunding all the taxes to auto manufacturers such as – fuel, electricity duty, road tax, temporary registration changes and non-creditable input on GST, ARAI certification changes etc.
The aim of RoDTEP is to refund non-creditable taxes embedded in the export product and the genesis of GST was to create a robust Input Tax Credit mechanism. “However, there are certain products which are out of the purview of GST and few GST payments are not available as ITC. Few of these examples include Excise duty and VAT paid on fuel, GST and Compensation cess paid on coal (which is used in manufacture of electricity), taxes paid to local authorities/state authorities, road tax, toll tax, octroi. All of such taxes should be reimbursed under a RODTEP Scheme,” says Rohit Jain, Partner, Economic Laws Practice.
The RoDTEP committee is undertaking a factual data collation exercise in consultation with industry players and the format prepared by the committee is quite comprehensive. “However, in this context, certain tax costs have to be considered based on certain assumptions e.g., embedded tax cost in the logistics cost incurred by the exporters, or embedded tax cost in the electricity/power consumption charges. One may not be able to calculate such embedded tax costs easily and therefore, the practical difficulty should be considered and reasonable assumptions should be allowed based on industry research reports,” says Satyakam Arya, MD& CEO, Daimler India.
“In the aluminium industry, production is highly power intensive and power costs account for close to approximately 40% of production costs which makes it important to allow remission of electricity duty which abnormally high. As per a NITI Aayog report power costs are globally the highest for Indian Aluminium.”, says Ajay Kapur, CEO- Aluminium & Power and MD – Commercial, Vedanta
Currently the issue that some companies are facing is in collating data with respect to the tax cost pertaining to raw materials, consumables, etc. This issue needs to be solved through consultations. Industry players are hoping that the RoDTEP committee follows a pragmatic approach while determining a benign rate that is reflective of industry average and without any ceiling rate. They’d like the committee to consider all kinds of taxes and duties incurred by the exporter or its suppliers – procurement, production, sale, distribution or even general administration. A liberal approach would be most welcome with the motto to eliminate any direct or indirect cost that hinders competitiveness of Indian products.