RoDTEP: Delay in new export subsidy scheme makes life difficult for exporters

by Joseph K. Clark

The export subsidy RoDTEP has been in place for the last two months, but the government has not notified the rates.

Import, Export, Trade for MSMEs: The non-implementation of the new export benefit scheme Remission of Duties and Taxes on Export Products (RoDTEP) is hurting exporters, making them uncompetitive in the international market.

export subsidy scheme

Earlier exporters were given a wide array of input tax benefits such as Merchandise Exports from India (MEIS) and others. Last year, these were all withdrawn by the government, and a single export benefit scheme RoDTEP that was applicable on all export goods was introduced, effective from January 1st, 2021.

RoDTEP is a remission of duties and taxes paid to exporters on production inputs such as electricity tax, diesel tax, panchayat tax, stamp duty. The idea is to boost exports and make the Indian exporter competitive in the international market.

However, the subsidy has been in place for the last three months, but the government has not notified the rates. The exporters still don’t have an inkling on whether they will get a benefit of two percent or five percent, restricting their ability to price products competitively.

“The rates are important for the industry because whatever the benefits the exporter gets from the government, they factor it in their product’s prices, passing a part of it to the buyer,” says Ajay Sahai, Director General, Federation of Indian Export Organisation (FIEO).

“While it impacts each and every exporter, it hits the exporters in the commodities business the most as they operate on wafer-thin margins and are largely dependent on government’s benefits,” says Sahai. It has brought an element of uncertainty in trading, and in the absence of rates, many exporters are reluctant to finalize their contracts, he adds.

By June 2020, several export promotion councils, including FIEO and Plastics Export Promotion Council (PLEXCONCIL), had submitted data to the government that exporters need to be compensated to the tune of 2-5% depending on the place of manufacturing. The manufacturing units situated near the port have less percentage versus those setups that are farther inland.

Also, there is confusion in how the subsidy will be implemented, says Ravish Kamath, CEO of Big Bags International and past Chairman PLEXCONCIL. The RoDTEP system does not allow the exporters to apply for the export benefit if they have availed duty-free inputs against advanced import licenses (the use for import of duty-free material).

He explains that when an exporter uploads the shipping bill in the system to avail of the RoDTEP benefit, a column asks if they have taken an ‘advanced import license’ to import raw material. If an exporter replies in the affirmative, then they cannot avail it.

On average, an exporter in a year ends up with a 5-8 percent pre-tax profit. So, if the subsidy of say four percent is withdrawn, it impacts almost half of their profit.

The government has been introducing several measures to boost exports, but delaying such incentive schemes will put the country on a back foot. “India has been talking about the stability of the policy regime to attract investment, but that can’t happen unless it starts rolling out schemes that are complete with all its nuts and bolts in place, so there is no element of uncertainty for the industry,” say experts.

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