The Ministry of Commerce and Industry blocked the online system for exporters to avail tax incentives under the Merchandise Export from India Scheme (MEIS) scheme from July 23 since the Department of Revenue has limited the benefits under the scheme at Rs 9,000 crore for April-December 2020.

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In May, the Department of Revenue had conveyed that it may not be feasible to exceed MEIS allocation beyond Rs 9,000 crore for 2020-21 (until December 2020).

Here's a detailed explainer on what MEIS is and how it benefits exporters.

What is MEIS or Merchandise Exports from India Scheme?

The Merchandise Exports from India Scheme (MEIS) provides rewards to exporters in sectors that generate employment and increase India's competitiveness. The scrips or provisional certificates given by the government under this scheme can be used by exporters to offset infrastructure and export related costs. Exporters prefer to term these incentives as reimbursements for embedded taxes.

Priority areas under MEIS scheme?

Agriculture, agro-processing, mining, manufacturing, textiles, consumer goods, infra development, construction, medical and scientific instruments.

Rewards under the MEIS scheme?

Incentives paid out under the scheme range from 2-5 percent. Textile and agriculture products get the highest incentives.

When is the MEIS scheme valid until?

The Commerce Ministry had earlier said in April that this scheme would be available only till 31st December after which RoDTEP scheme would apply. RoDTEP has been cleared by cabinet and stands for Remission of Duties and Taxes on Export Products

Can exporters currently avail incentives under MEIS?

The Directorate General of Foreign Trade has asked the Department of Revenue and CBIC to stop registration of applications for scrips or incentives under the MEIS scheme for shipping bills dated April 1, 2020. Incentives to the tune of Rs 422 crore were issued to various exporters until July 20. The online MEIS module has been blocked and the Commerce Ministry wants to cap allocations to Rs 9000 crore for FY21.

Why has the government stopped registration of scrips?

Government sources argue that allocation for MEIS funds jumped from Rs 15,000 crore in FY15-16 to approximately Rs 50,000 crore in FY19-20, but exports haven't grown proportionately. The government is in the process of identifying champion sectors which need to be encouraged and certain sectors can avail incentives under the PLI scheme too.

What is the impact?

The Federation of Indian Export Organisations has said that the government has not been clearing applications for reimbursements since April 1, 2020. "This is a challenging time and our cash flows have been affected to the extent of $4 billion as our applications are not being cleared," said Sharad Saraf, President, FIEO. Saraf added that exporters have been left in the lurch as all of them factor in this reimbursement in their costing for the year.

However, industry sources said that textiles and agricultural exports are likely to be impacted the most as they enjoyed a higher rate of incentive under the scheme. Even India's vehicle manufacturers, especially those with higher export volumes would be significantly affected.