Exim policy to have liberal tone

NEW DELHI: The government is considering liberalising the export promotion capital goods (EPCG) and “served from India” schemes in the 2007-08 annual statement on foreign trade policy.

The statement, officials said, will keep the broad five-year policy framework stable and is unlikely to contain dramatic changes, particularly since an alternative to the duty entitlement passbook scheme (DEPB) scheme has not yet been found.

Since the alternative scheme is delayed, pending broader consultations with states on freeing exports from state-level levies, the existing DEPB is in for an extension from March 31, 2007, when it is due to lapse.

“While exports continue to be buoyant, growing at over 20% annually, this year’s policy statement would keep in view the need to accelerate growth in the context of the proven capacity of exports to generate additional employment and economic activities within the country,” said a senior official.

Export promotion schemes in employment-intensive sectors, including agriculture, leather and leather products, handicraft and marine products, are likely to be further fine-tuned to generate greater exports, particularly from small enterprises.

“The focus needs to be on simplifying export and import procedures for small- and medium-sector units, which contribute a large amount to the total exports from the country,” chairman of the CII’s trade policy committee Sanjay Budhia said.

Commerce ministry officials said export promotion schemes are designed with the key objective of ensuring that “taxes are not exported”.

The present DEPB scheme gives tax credit to exporters for a few central taxes, mainly customs and excise.

But exports still suffer from the incidence of central sales tax, fringe benefit tax, service tax, octroi and state-level levies. A new mechanism has to be found for keeping exports exempt from these taxes and duties.

An expert committee, headed by Planning Commission member Anwar Hoda, which was entrusted with the task of formulating a new mechanism, has suggested that wider consultations should be held with the states before finalising an alternative to the DEPB scheme.

The “served from India” scheme in the current policy is a key instrument for promoting exports from India’s dynamic services sector, which now accounts for 59% of GDP.

A key change under consideration is to allow the use of the “served from India scrip” for payment of service tax on input service.  At present, utilisation of duty-free credit scrip earned from the “served from India” initiative can be utilised for payment of excise duty on locally procured inputs that are otherwise allowed to be imported.

But export of a number of services also require to avail input services from domestic sources. The incidence of service tax is 12.24%, which puts a substantial cost on the exporters.

The EPCG scheme, on the other hand, allows import of capital goods at a concessional duty of 5%, subject to the obligation that exports equivalent to eight times the duty saved must be made over eight years.

There is a further condition that the export obligation would be over and above the average level of exports achieved by the exporter in the preceding three years for same or similar products.

This condition is proposed to be eased, making EPCG more attractive.Since import tariffs on capital goods in general have now been reduced to very low levels, exporters find it unattractive to avail EPCG with all its conditions.  

Meeting an export obligation over and above the average level of past years’ exports becomes particularly difficult, if the machinery proposed to be imported under EPCG are meant to replace old capital goods.