October 2, 2017

Exporters may be allowed to use a scrip they get under the critical Merchandise Export from India Scheme (MEIS) to pay goods and services tax (GST), with the GST Council expected to decide this week.

Exporters may be allowed to use a scrip they get under the critical Merchandise Export from India Scheme (MEIS) to pay goods and services tax (GST), with the GST Council expected to decide this week on a host of trade-related issues that will finally make their way into the mid-term review of the Foreign Trade Policy (2015-20) this month, official sources told FE. The GST Council will also decide on a proposal to soften the blow to exporters on the payment of an 18% integrated GST for raw material imports under the advance authorisation scheme (AAS) for subsequent re-exports, apart from addressing another key issue of an effective mechanism for faster duty refunds to them. Before the GST was launched, exporters were exempted from the duty payment for imports of inputs under the AAS for re-exports within a stipulated period after value addition.

Decisions on these and other GST-related issues, and greater support under the MEIS by either adding more items to the list or enhancing existing subsidy level for certain products will also feature in the review, said the sources. Sectors having immense employment potential — such as food and agriculture, garments and textiles — could get higher support in the review. MEIS is the most important export promotion scheme under which the government provides exporters duty credit scrip at 2%, 3% or 5% of their export turnover, depending upon products and shipment destinations.

The potential revenue forgone by the government on account of the scheme is estimated at Rs 22,000-23,500 crore a year. In the pre-GST period, exporters were allowed to utilise the MEIS scrip for the payment of a host of taxes–including excise duty, service tax, value-added tax and basic customs duty. However, with the introduction of the GST, the government has permitted the use of such scrip for the payment of only the basic customs duty.

Exporters complain such a move amounts to an abrupt withdrawal of legitimate benefits announced under the Foreign Trade Policy (2015-20) to make goods exports globally-competitive and adversely affects their cash flow. For small and medium enterprises with limited access to credit, this remains a huge challenge. However, the government is unlikely to suspend abruptly any export subsidy already promised under various schemes in the mid-term review, despite the fact that under a WTO norm, it may have to phase out export subsidies in the coming years, one of the sources said. This is because India’s export subsidies are still very less, compared with the sops cleverly tailored by many countries to effectively subsidise exports in some way or the other, he added.

The MEIS was announced in the current FTP in 2015 by merging five different schemes prevalent earlier– Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri Infrastructure Incentive Scrip and Vishesh Krishi And Gram Udyog Yojana. In September last year, the government had last widened the ambit of MEIS to offer assistance on items ranging from certain varieties of garments to marine products and engineering goods, potentially bearing an additional cost of Rs 1,500 crore a year to the exchequer. At present, as many as 7,103 products are covered under the MEIS, with varying degree of support. Roughly 70% of the country’s exportable items are covered under the scheme.

TS Bhasin, chairman of the Engineering Export Promotion Council, said the withdrawal of the benefit to use MEIS scrip to pay GST is “unfair” and is “going to affect very badly exporters’ cash flow and working capital”. Similarly, the IGST payment for inputs imported under the AAS will make it extremely difficult for exporters to sustain operations in a fiercely competitive global market.

According to the Federation of Indian Export Organisations, the imposition of IGST on imports under the AAS is blunting exporters’ competitive edge. This is because the EU and many other countries, operating under GST/VAT regime, do provide complete exemption from import charges on inputs used for re-exports.

[The Financial Express]