New DEPB plan will neutralise state taxes

Move to merge DEPB, duty drawback schemes on at another front

KOLKATA: A new duty-free entitlement passbook (DEPB) scheme, aimed at neutralising the impact of state-level taxes and levies on production of goods meant for export, is in the works.

The Union commerce ministry has prepared a note on the new scheme to be submitted before the Cabinet Committee for Economic Affairs (CCEA). It is expected to be in place this calendar year itself.

The move comes even as the government is giving the final touches to the merger of the duty drawback and DEPB schemes.

At present, value-added tax (VAT) on export production is refunded on production of shipment bills.

But none of the current export incentive schemes take into account state taxes like octroi, electricity duty, mandi tax — in case of agro-product exports — and several cess for backward area development fund, particularly in mica and shellac exports.

As a result, many small and medium exporters become price-uncompetitive even by relatively small taxes or cess.

The new DEPB scheme to neutralise state-level taxes would be a big relief to them.

Similarly, the merger of DEPB and duty drawback schemes would help a large number of exporters to avail of the single neutralisation scheme since many small and medium exporters do not avail of DEPB, officials said.

The new DEPB scheme would have to be vetted by the CCEA before being activated by the directorate general of foreign trade (DGFT) as any attempt to neutralise state-level taxes would hit their revenues and they may have to be compensated by the Centre, commerce ministry officials said.

Under the current DEPB scheme, exporters are compensated for customs duty on imported raw materials for export production through freely transferable credits at pre-determined rates for all specified product categories.

Under the duty drawback scheme, exporters are entitled to cash refund to the extent of customs and excise duty paid on export production, simply on filing of shipping bills. The amount is electronically transferred to exporters’ accounts with designated commercial banks.

But ministry officials pointed out that though there is an exhaustive list of product categories and rates at which exporters are entitled to credits under the DEPB scheme, the duty drawback scheme does not have such an exhaustive list.

Hence, it has been suggested that the entire DEPB credit rates may be transferred to the single merged scheme to neutralise taxes against exports.