Government caps MEIS benefits to Rs 2 crores
The government has announced discontinuation of MEIS as a new WTO-compliant scheme, the Remission of Duties or Taxes On Export Product (RoDTEP) which will replace starting 1 January, 2021.
The Department of Commerce has capped benefits of Merchandise Exports from India Scheme (MEIS) upto 2 crore per Import Export Code (IEC) or per exporter. The cap is applicable to exports between September 1, 2020 to December 31, 2020.
Sharad Kumar Saraf, President, Federation of Indian Export Organisations (FIEO) welcoming the new decision said that it will help in resolving the impasses, resulting in the blockage of MEIS benefits from 1st April 2020 and would provide huge relief to the majority of exporters and give them stable policy environment for exports.
However, the sudden imposition of a cap of Rs 2 crore on MEIS benefit of exports made during the months of September-December, 2020 is going to seriously affect exporters, whose numbers may not be very large, but their contribution to exports warrant a revisit to the imposition of cap.
President FIEO said that the exports which will be made during September-December, 2020 are based on the orders, which have already been negotiated much earlier factoring the existing MEIS benefit. These benefits are part of the export competitiveness and therefore the sudden change will affect the exporters’ financially as buyers are not going to revise their prices upward.
The notification also stated that the new importer exporter code (IEC) obtained on or after the notification have also been made ineligible for submission any MEIS claim for exports made from 1 September onwards to avoid circumventing the cap.
FIEO expressed its concern over the financial outlay of Rs 5,000 crore given for exports during September-December, 2020 with the condition that if claims exceed Rs 5,000 crore, the ceiling may further be revised downwards. This will create huge uncertainty as those eligible for a cap of Rs 2 crore will not be able to factor even such benefits in their exports. Clarity is also required whether any change in the MEIS rate will be notified for those who are not affected by the cap if the amount of Rs 5,000 crore is exhausted.
Traditionally there were schemes to extend benefits to exporters like Duty Drawback which comes to 2-3 per cent. Schemes like MEIS and Brand Drawbacks were aimed to offset the custom duty or taxes paid for raw material or export products. Schemes like Advance Licenses and EPCGs gave upfront exemptions. The government is introducing a new scheme, Remission of Duties or Taxes on Export Products (RoDTEP), a new scheme that will replace MEIS in a phased manner. Introduced in 2015, the MEIS was an amalgamation of five reward schemes. Exporters earned duty credits at fixed rates of 2, 3 and 5 per cent on the export of certain products to three sets of countries. However, it originally covered 4,914 tariff lines, it currently covers 8,059, which constitute 75 per cent of all traded products.
The move is in line with the government plans to initiate a new scheme, driving exporter with an easier framework. The notification also highlighted that the MEIS scheme is withdrawn with effect from January 1, 2021. On the contrary, the FIEO also urged the Government to extend the MEIS Scheme till 31st March 2021, coterminous with the existing Foreign Trade Policy. The RoDTEP Committee has started the work but the industry is facing challenges in providing the data due to frequent local lockdowns, non-availability of transport and non-functioning of auditors. Moreover, fixation of rate for over 10,000 items at 8 digits would be a time consuming exercise, particularly as it has to meet the discipline of WTO, observed Saraf. The extension in the MEIS till 31st March, 2021 will help in a smooth transition to the RoDTEP scheme as well since the scheme is going to stay for zero-rating of exports.
FIEO has also urged the government:
(i) Open the facility for filing of MEIS claims for exports made from 1st of April, 2020;
(ii) Release RoSCTL benefit for exporters of Chapter 61, 62 and 63, which are pending; and
(iii) Announce SEIS benefits to Service exporters for the financial year 2019-20 and notify the scheme for 2020-21.
Instead of extending the MEIS, which costs Rs 43,500 crore in 2019-20, the finance ministry and the NITI Aayog have called for putting financial resources into new Production-Linked Incentive (PLI) schemes in select sectors with core competency and potential for global exports. Unlike MEIS, RoDTEP aims to support a few identified sectors where the government deems India to have competitive strength and assist companies to enhance their size and scale. Commerce Ministry has suggested expanding the MEIS successor scheme to support exporters but the Revenue Department is unwilling to increase tax liability under the upcoming RoDTEP scheme or expand Rs 9,000 crore MEIS outlay till December.
FIEO last month observed that as the global trade forecast still shows a gloomy picture, there is an urgent and immediate need for a special export package for reviving India’s foreign trade. Besides the creation of an Export Development Fund with 1% percent corpus of the total value of exports during the last fiscal, MEIS of 2% across the board and 4% for labour-intensive sectors and addressing "risky exporters" issues apart from quickly deciding on RoDTEP rates are some of the key concerns, which should be immediately considered to give a much-needed boost to the exports sector and the overall economy.
Earlier, the Confederation of Indian Industry (CII) batted for increasing MEIS rates for all products by 2 per cent, for a period of six months, up to December 31. “India’s working capital cycle is elongated owing to various factors, necessitating higher credit requirements, which add to costs of exports,” it said.