DEPB fate uncertain as FinMin refuses to relent

The finance ministry is still resisting an extension of the duty entitlement passbook...

The finance ministry is still resisting an extension of the duty entitlement passbook (DEPB) scheme by a year, citing the huge revenue losses and the scheme’s WTO-incompatibility. The scheme, which neutralises customs duty on the deemed import content of exported goods, will end on March 31 this year. A decision on the scheme will have to be taken before the annual supplement to the foreign trade policy is announced next month. With about Rs 5,900-crore indirect tax losses expected from the Budget proposals, the revenue department is not keen to give out more sops, such as the DEPB.

According to the budget document, the revenue foregone on DEPB in 2007-08 is at Rs 4,643 crore, down by 4.1per cent from Rs 4,842 crore in 2006-07. The commerce ministry had earlier recommended to the revenue department that DEPB should be extended by another year for employment-intensive sectors to counter the impact of rupee appreciation on exports. The ministry also argued that the scheme’s continuation was important to offset the losses incurred by exporters from the rising transaction costs.

Exporters say the rising value of the rupee against the dollar has led to 5.5 million job losses and over Rs 30,000-crore revenue losses in the past one year. The finance ministry says the scheme is not compatible with WTO norms as it could be treated as an export subsidy. This would, in turn, help other countries to impose a countervailing duty on such exports from India. However, commerce ministry said only less than 0.01per cent of India’s total exports are hit by being non-WTO compatible. The scheme, applicable to 52 per cent of India’s merchandise exports, came into force in 1997. Since it faces allegations of being WTO-incompatible, the Centre has tried to replace it with a scheme that would reimburse prior stage cumulative indirect taxes, which do not come under VAT. These include reimbursement of CST and duty on inputs like electricity and fuel.

Passbook to Relief

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•Finance ministry cites huge revenue losses and scheme’s WTO-incompatibility

•Decision must be taken before annual foreign trade policy supplement is announced in April

•Revenue foregone on DEPB in 2007-08 stands at Rs 4,643 crore, down 4.1per cent from 2006-07

•Exporters say rupee appreciation led to 5.5 mn job losses and Rs 30,000-crore revenue losses

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