Remission of Duties and Taxes on Exported Products, or RoDTEP, is a brand-new program that the Indian government has introduced to help exporters operate more effectively. On January 1, 2021, the day it was publicized in the press, this program superseded the earlier Merchandise Exports from India Scheme (MEIS). The program’s primary goal is to compensate all exporters for previously non-reimbursable taxes and levies. This encourages international trade by providing exporters with new rewards for sending their goods and services abroad. The program is anticipated to substantially impact India’s ability to compete internationally during the next five to ten years. It is based on the idea that taxes and levies shouldn’t be exported but rather should be waived or remitted to exporters. The customs department will implement RoDTEP. The refund provided by the plan would not apply to previously waived, remitted, or credited duties and taxes. The government has stated that it will spend Rs 12,400 crore on the program. Recently, the Ministry of Commerce and Industry announced the Remission of Duties and Taxes on Exported Products scheme for 8,555 products for the FY 2021–22.
Need of the RoDTEP Scheme:
The USA complained against India at the World Trade Organization (WTO), which led to the creation of the RoDTEP Scheme. The USA contended that WTO regulations are broken by export subsidies like the MEIS program offered by the Indian government, which gives Indian exporters unwarranted advantages. As a result, India was unsuccessful in the WTO, and the USA won the decision. It implied that India would have to abandon the MEIS program and develop a new export assistance program that complied with WTO regulations. As a result, the Finance Minister stated in her Budget Speech on February 1, 2020, that a Scheme for Remission of Duties and Taxes on Export Products will be introduced. As a result, on March 13, 2020, the Union Cabinet adopted the RoDTEP Scheme, which went into force on January 1, 2021, and would last until 2025.
Five Indian export subsidy programs were contested by the US in the World Trade Organization in 2018. This includes plans like
- Export Oriented Units (EOU)
- Electronics Hardware Technology Parks (EHTP)
- Special Economic Zones (SEZ),
- Merchandise Export from India Scheme (MEIS)
- Export Promotion Capital Goods (EPCG)
The WTO concluded in October 2019 that these schemes provide prohibited export subsidies, which is against the WTO agreements. The WTO panel also advised the Indian government to discontinue these schemes. In response, the WTO-compliant RoDTEP plan was developed by the Indian government.
Importance of the RoDTEP Scheme:
- Make India more competitive: Indian goods will become competitive in international markets thanks to the reimbursement of taxes including duty on electricity charges, value-added tax on transportation fuel, and farm sector taxes, among others. Over the next five to ten years, it is anticipated to have a substantial impact on India’s exports, trade flows, and competitiveness.
- Automated Tax Assessment: It also provides for the full automation of tax assessment for exporters. Businesses would have automatic access to their GST (Goods and Services Tax) refunds through this mechanism.
- Equivalent to international standards: Indian exporters would be able to comply with international export requirements thanks to the availability of reasonably priced testing and certification within the nation rather than relying on external entities. The country’s economy would benefit from this, and the company would have more working capital.
Features of the RoDTEP Scheme:
- Refund of taxes, charges, and levies: It includes all central, state, and municipal taxes and charges that are not covered by another system. The RoDTEP now contains items that were formerly under the MEIS.
- Automatic refund procedure: Exporters will receive refunds in the form of electronic checks or transferable duty credits, and they will be recorded in a computerized ledger. This is consistent with the
- Mission Digital India: On imported items, this can be used to pay the minimal customs charge. Other importers may also receive the credits.
- Accelerated clearance through digitization: Through a monitoring and audit system and an IT-based risk management system that will physically verify the exporters’ data, quicker clearance through a digital platform will be made possible.
- All-inclusive plan: All sectors are eligible for the program.
Coverage of the RoDTEP Scheme:
The RoDTEP program covers industries that promote employment, such as agricultural, leather, gems & jewelry, and maritime. In addition, it will benefit industries like automotive, manufacturing, plastics, and electrical/electronics. The Rebate of State and Central Taxes and Levies (RoDTEP and RoSCTL) encompasses the full textile value chain.
Advantages of the RoDTEP Scheme:
- The new plan is more thorough since it includes levies like the education cess and state taxes on water, oil, and electricity that were not included by the old plan.
- With guaranteed tariff benefits from the Indian Government, it will increase competition in international markets.
- Additionally, it will support business growth and assist exporters in meeting international requirements.
Disadvantages of the RoDTEP Scheme:
- As the rates are substantially lower than MEIS rates with a smaller budget allocation, the program disappointed many exporters.
- In many instances, the rates do not take into account the taxes that are incorporated into their basic materials, such as steel in engineering items.
- Major exports like steel and pharmaceuticals, as well as exports made with an advance authorization, through an EOU (export oriented unit), or through a SEZ (special economic zone), do not appear to be eligible for the advantage.
- It will hurt India’s exports’ ability to compete internationally and create a bad atmosphere among exporters.
- Labor-intensive industries will gain greatly from the MEIS Scheme.
- RoDTEP eligibility does not require a minimum turnover.
- Exports must originate in India in order to be eligible for the program’s advantages.
- Reexported goods are exempt from this.
How it will Work?
It will cover 8555 tariff lines, or the specific goods that India exports to other countries. It tries to reimburse exporters for not refunded charges and taxes, such as the Mandi tax, duty on electricity used in production, and VAT on fuel used in transportation.
Exporters would receive tax credits ranging from 0.5 to 4.3 percent. A proportion of the freight on board value of exports would be used to calculate the rebate. The government has made it clear that value caps per unit of the exported good will also apply to rebates on some products.
The reimbursement would be applied to the exporter’s Customs ledger account and used to cover the importers’ Basic Customs duty. Other importers may also receive the credits. Any exporter who wants to take advantage of it must state in the shipping bill or bill of export what they want to export for each item. Dedicated to Employment The program covers industries like marine, agricultural, leather, jewels, and jewelry. The automotive, plastics, electrical/electronics, and industrial industries will also receive support.
The Eligibility Criteria of the RoDTEP Scheme:
- The RoDTEP Scheme offers benefits to many industries, including the textiles industry. Priority will be given to labor-intensive industries that benefit from the MEIS Scheme.
- The advantages of this program are available to both manufacturer and merchant exporters (traders).
For the RoDTEP to be claimed, there is no set turnover requirement. - Re-exported goods are not permitted under this program.
- The exported goods must have India as their country of origin in order to be eligible for this scheme’s benefits.
- The benefits offered by this program are also available to export-oriented units and special economic zone units.
- RoDTEP program is applicable to products that have been exported via courier through online shopping platforms.
Key Difference between MEIS and RoTEP:
- A one-time incentive under MEIS (Merchandise Exports From India Scheme) that could be utilised to pay import duties was made available as a percentage of the export price. In contrast, exporters are entitled to a specific portion of the export price as a scrip under the RoDTEP Scheme, roughly equal to the embedded taxes.
- The RoDTEP Scheme is an electronic, transferable credit that can be used to pay only the Basic Customs Duty, as opposed to the MEIS Scheme, which is an incentive in the form of physical, transferable scrips used to pay for other components of customs charges.
- While the RoDTEP Scheme has been designed in conformity with WTO standards, the MEIS Scheme has been questioned regarding its compliance with WTO criteria.
- In comparison to RoDTEP, which is based on the actual taxes and levies that are embedded in the commodity, the MEIS incentive was frequently higher.
Challenges with the RoDTEP Scheme:
- Issues with Low Rates: Exporters complain that the relief provided is insufficient and that the low rates granted by the scheme will be of inferior value to the MEIS.
- Problems with the Exemption: Exporters in industries using iron and steel as inputs, such as engineering and electronics, are dissatisfied because they are unable to claim advantages for their inputs because iron and steel have been excluded from the program.
- Not Tenable: The plan makes the tax system more complex rather than unifying and streamlining it. It is not feasible to move forward by making the tax and refund system more complex.
- Multiple Rates are Challenging to Administer and Manage: The RoDTEP scheme’s intervention, which involves 8,555 goods with reimbursement rates ranging from 0.3% to 4.3% and a number of per-unit rebates, would be challenging to manage and administer.
Conclusion:
India is expected to benefit greatly from the scheme in terms of exports and revenue. As demonstrated during the six months of tax-free exports, the program advances the government’s goals of boosting export revenue and promoting global trade. Because companies won’t have to worry about paying taxes or customs on imported capital goods, exporters using the RoDTEP plan can better serve their consumers by reducing costs and maximizing efficiency. Exporters won’t any longer be required to pay taxes or customs on imported capital items. By doing this, it becomes less likely that the business would encounter problems as a result of doubts about compliance. The MEIS constituted a direct export subsidy and a WTO breach, and the government must inform the exporters of this. Therefore, the government cannot carry out that plan. The government is required to let exporters know that the RoDTEP is WTO compliant and a remission of taxes, tariffs, and other levies that are not already covered by other programs. In the past, the government’s failure to timely reimburse exporters has caused export incentive programs and even the regular GST refund to collapse. So, in order to improve export competitiveness, the government must provide quicker refunds under the RoDTEP Scheme.