Bringing down curtains on the popular Duty Entitlement Pass Book (DEPB) scheme, the government on Friday announced that shipments of 1,100 items will be entitled to lower tax refunds under a new transitory scheme from October 1, a virtual withdrawal of the stimulus package doled out in 2008-09.
Addressing a press conference here, Finance Secretary R. S. Gujral said on export of these items, the tax refunds would be reduced by 1-3 per cent. He also unveiled the transitory scheme for the Duty Entitlement Pass Book (DEPB) scheme. “As a transitory arrangement, these items will suffer a modest reduction in the existing DEPB rate to the extent of 1-3 per cent,” he said.
Officials in the Commerce Ministry termed the new development as withdrawal of the stimulus package given in 2008-09 after the global financial crisis. The DEPB rates were revised upward as part of the stimulus at that time. Since tax incentives for these goods will now be available under the Duty Drawback Scheme (DDS), the total number of items under the DDS would increase to about 4,000 from 2,835.
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While different avenues are available to exporters for refund of the duties, the DEPB is the most preferred route for its flexibility and attractive rates which average about 8 per cent.
The government had spent Rs. 8,700 crore last year on DEPB refunds and engineering, chemical, pharmaceutical, textile and marine products have been the major beneficiaries.
Central Board of Excise and Customs (CBEC) Chairman S. D. Majumdar said with the withdrawal of the DEPB scheme, the Government's revenue forgone would be less.
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Since the scheme would not continue beyond September 30, it had been decided to provide a smooth transition for these items (mainly engineering, chemical, pharmaceutical, textile and marine) while incorporating these in the Drawback schedule.
Besides, the tax refunds for the items already under the DDS have been reduced. “The reduction is mainly on account of the reduction in basic customs duty on crude petroleum from 5 per cent to nil as well as a cut in central excise duty on diesel from Rs.4.40 to Rs.2.40 per litre,” he said.
Of the 1,100 items being shifted to DDS, there would be a ceiling of 5.5 per cent tax refund rate on 660 items. However, the ceiling would not apply to 340 items including worsted woollen yarn, blanket, nylon twine, cut polished chat stones and polyester metalised film. Though exports have shown a remarkable performance, growing by 54.2 per cent between April and August 2011 to $134.5 billion, there are concerns that the momentum may not be sustained in the wake of increasing economic problems in the U.S. and Europe.