The Finance Ministry's declaration to withdraw the popular and 14-year-old DEPB tax rebate scheme from June is inducing protests among exporters.

It is a long-standing expectation of the exporters that a refund of taxes be given to them, which have been paid by them in terms of exported goods and services. The Duty Entitlement Pass Book (DEPB) is an export incentive scheme wherein exporters are given passbook credits on the FOB value of their export merchandise. This can be utilized for the payment of import duty or can also be transferred to other importers. The Government's current decision that tax refunds for DEPB will be stopped from June onwards is causing unrest among the exporters.

Government spends around ₹8,000 crore on tax rebates for exporters under the DEPB scheme. The Economic Times reports Revenue Secretary Sunil Mitra telling the reporters, "All exports will be zero-rated after Duty Entitlement Pass Book (DEPB) scheme ends. Two similar kinds of schemes cannot go on. It will save some revenue for the government."

Earlier till 2005, the Government has been giving tentative extensions to the scheme. The scheme remains popular among exporters only due to its simplicity; facilitating the exporters to avail reimbursement of taxes from their export merchandise. After periodic extensions, the finance ministry has decided to stop the scheme. Exporters fear that this might make the export market uncompetitive and a resulting decline in the economy's growth.

DEPB Vs Duty Drawback:

Major exporters are likely to have a serious impact compared to the smaller ones as they are enjoying more benefits from this scheme. Major revenue from the DEPB scheme goes to the big exporters, and analysis reveals that the returns have increased over the years. Simultaneously, returns from duty drawback scheme have witnessed a decline.


The amount of refund given by the Government under the duty drawback scheme during 2008-09 was `12,120 crores, while under the DEPB scheme it was `7, 092 crores. There was a drastic change during 2009-10 when the duty drawback amount declined to `9, 231 crores, and DEPB refunds increased to `8, 027 crores. Tax refunds for 2010-11 calculated till 2010 Dec show a refund of `6,643 crore under the duty drawback scheme, while under DEPB it is `6, 434 crores.


Possible Alternatives:


Apart from asking for an extension of the DEPB scheme, there are other possible alternatives, which can be considered. A committee report submitted recently to the Government states that an alternate scheme should be devised before the DEPB scheme is scrapped out. There is yet another option by which exporters can avail a local tax refund through duty drawbacks. But exporters do not appreciate this option, as reimbursement under the duty drawback scheme is lower. Under DEPB scheme, if the exporters get 8-9% of refund, under the duty drawback scheme, they will get only around 5%. It is also considered that, after the introduction of GST (Goods & Service Tax), the DEPB can be recouped. But, the point to be considered here is that, the GST may not cover all the taxes paid by exporters.


If exporters do not get tax refunds, they may only attempt to carry it over on the exported merchandise. The international trade principle states that taxes cannot be exported. Hence, the Government should work out a suitable option to neutralize the taxes paid by exporters, and till then should opt to continue with the existing scheme.

References:


1.      Depb.net

2.      Economictimes.indiatimes.com

3.      Smartinvestor.in

4.      Business-standard.com

5.      Timesofindia.indiatimes.com