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SEZs to get more tax relief under RoDTEP cover

February 22, 2024
Reading Time: 3 minutes

New Delhi -  The Government has decided to extend the benefits under tax remission scheme RoDTEP to export-oriented units and manufacturers in the special economic zones (SEZs).

This will allay the concerns among manufacturing units in SEZs about non-refunded taxes denting their competitive edge in world markets.

“After the roll-out of ICEGATE (Indian Customs Electronic Data Interchange Gateway) in SEZs, the RoDTEP scheme may also be extended to SEZs,” according to an office memorandum of the Commerce Ministry.

ICEGATE is the national portal of Indian Customs of Central Board of Indirect Taxes and Customs (CBIC) that provides e-filing services to the trade, cargo carriers and other trading partners.

The inclusion of EoUs and SEZs in the RoDTEP (Remission of Duties or Taxes on Export Products) scheme will have to be notified by the Directorate General of Foreign Trade.

Currently, RoDTEP covers around 10,610 export items with rates of tax refund ranging from 0.01% to 4.3%. But it doesn’t include exports from EOUs, SEZs, manufacturing and other operations in a Customs Bonded Warehouse and Advance Authorisation Scheme.

The excluded sectors have been asking for inclusion in the RoDTEP as they maintain that they also pay embedded taxes on domestic procurement and fuel both for inward and outward transportation. This demand has been backed by the Parliamentary Standing Committee on Commerce. Till now SEZ/EoUs have been out of the scheme as the SEZs already get a slew of tax reliefs.

The decision may be a big bonanza for high import-intensive exports from SEZs,” according to trade policy think tank Global Trade Research Initiative (GTRI).

Meanwhile, through a series of proposed amendments to the SEZ Act, the government was planning to ease conditions for the units in the duty-free enclaves which are deemed to be foreign territories for the purpose of trade operations, duties and tariffs. The amendments, which are now unlikely in the current government’s tenure, would have made it much easier for SEZ units to sell goods in domestic tariff areas. Currently, sales from SEZs to DTAs are allowed but on payment of basic customs duty, Integrated Goods and Services Tax (IGST), antidumping, countervailing and safeguard duties (under the Customs Tariff Act, 1975), wherever applicable.

SEZ units want the government to go a step further. They want customs duties on domestic sales to be at par with what exporters from FTA countries pay.

“A lot of big exports from SEZs, like electronics (including smartphones), petroleum products, diamonds, and gold jewellery, add less than 10% of their value in India. This means over 90% of what makes up these products comes from imports, which don’t have to pay duties. If these exports get a 3% incentive from the RODTEP scheme, it means they earn an extra $30 for every $100 they make. If we add other incentives like PLI, the figure will be very high,” co-founder of GTRI Ajay Srivastava said.

The amount of such unrebated taxes comes down when exports are import-intensive and imports are duty free. Applying the same RODTEP rate to these imports could lead to overcompensation so a different set of rates should be applicable on SEZs, he said.

RODTEP scheme which was launched in January 2021 to refund taxes/ duties/ levies, which are not being refunded under any other mechanism, at the central, state and local level, but which are incurred in the process of manufacture and distribution of exported products. It came in response to the successful challenge to five India’s five key export promotion schemes including Merchandise Exports from India Scheme (MEIS) by the US at the World Trade Organisation (WTO) in 2018.

The refund in the scheme is in the form of transferable duty credit scrips that can be used to pay import duties or sold in the market by exporters.

Under the Scheme, a support of Rs 27,018 crore was extended to exporters for the 27 months till March 31, 2023. The RoDTEP scheme operates under a budgetary framework and for FY 2023-24, a budget of Rs 15,070 crore has been made available for it.

The exporters have also been asking for increasing the rate of refund under the scheme as it is much lower than what was available under the defunct MEIS. In September, 2023, the RoDTEP Committee was constituted by the Department of Revenue to review and recommend RoDTEP ceiling rates for different export sectors. The rates will be revised after carrying out the technical analysis based on the details submitted by the industry.

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