India's export incentive scheme called Merchandise Exports from India Scheme (MEIS) will be scrapped and replaced with a new duty refund scheme called Rebate of State and Central Taxes and Levies (RoSCTL).

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The MEIS scheme is an export incentive scheme which was challenged by the United States at the World Trade Organisation (WTO), which is likely to take a call on the dispute in September this year. Pre-empting an adverse report, CNBC-TV18 learns that the Commerce Ministry has floated a Cabinet note for a WTO-compliant scheme to ensure that India's exports remain competitive.

Instead of giving export incentives, the new scheme will seek to reimburse duties to exporters. As per current estimates, 11 State taxes and 6 Central taxes are not reimbursed to exporters.

"Exports should be zero rates from a tax point of view, need to take measures to ensure that disabilities to export companies are minimised," said India's former ambassador to WTO Jayant Dasgupta.

Reimbursements will be done through a freely transferable scrip, which will be determined by the duty drawback committee under the Department of Revenue. This committee will take into account the non-refunded duties that exporters have to bear and based on that it will derive a scrip rate for each export product. Since this is a massive re-orientation exercise, the new duty refund scheme will replace MEIS in phases.

Ajay Sahai, DG and CEO of Federation Indian Export Organisations (Fieo) said: "Embedded structure of tax being included in product costs needs to be looked at. Ease of credit access with competitive interest rate will further help export companies.”

As per current estimates of the Finance Ministry, the duty foregone on account of MEIS has been estimated at Rs 44,000 crore in FY19 and it is expected that the new scheme at the most will have the same level of duty foregone.

It remains to be seen whether exporters suffer competitive disadvantage vis-a-vis other countries in the global market, where exports are losing traction, after the removal of MEIS and the implementation of the new scheme.

First Published:Jul 29, 2019 8:59 PM IST