Decoding the RoDTEP Scheme- All you need to know

The origin of the Refund of Duties and Taxes on Exported Products (RoDTEP) came from a complaint filed by the USA with WTO, arguing that the government’s then-existing MEIS scheme (Merchandise Exports from India scheme) gave Indian exporters an unfair advantage and was not WTO compliant. The WTO Dispute panel did not rule in India’s favour as the MEIS violated the trade agency’s provisions by providing export subsidies on several goods & services, hence the end of MEIS (2015-20) gave birth to the RoDTEP scheme - which came into effect on January 1st, 2021.

In simple terms, RoDTEP implemented by the Customs department ensures a refund of the embedded central, state, and local duties and taxes paid on inputs that were so far not refunded or rebated to exporters. Several traits come into the spotlight:

• Refunds of the previous hidden taxes and duties, for example:

1. Central & state taxes on the fuel (Petrol, Diesel, CNG, PNG, and coal cess, etc.) used for transportation of export products.

2. The duty levied by the state on electricity used for manufacturing.

3. Mandi tax levied by APMCs.

4. Toll tax & stamp duty on the import-export documentation etc.

• Digitalization to implement RoDTEP increases the ease of doing business as the clearance happens at a faster rate via a simplified IT system.

• Automated refunds/rebates will be issued in the form of transferable duty credit/electronic scrips, which will be maintained in an electronic ledger.

• The compliance of RoDTEP with the WTO mandates vs the non-compliant MEIS.

• Automation of tax assessment to avoid double taxation.

However, let us see what distinguishes MEIS and RoDTEP?

While MEIS was an ad-hoc incentive available as a percentage of the export price which could be used to reduce import duties, RoDTEP entitles exporters to a certain percentage of an export price as a scrip which however gets limited to the embedded taxes.

The RoDTEP scheme essentially is based on a globally accepted principle that taxes and duties should not be exported, and taxes and levies borne by the exported products should be either exempted or remitted to exporters. The rates of RoDTEP will benefit more than eight thousand tariff lines and the benefits under the scheme range between 0.5% to 4.3% of the FOB value of exported products, subject to a cap (value cap) at a certain sum per unit of the export commodity. Employment-oriented sectors like marine, agriculture, leather, gems, and jewelry are covered under the scheme. Other segments like automobiles, plastics, electrical/electronics, machinery are also getting support under the RoDTEP scheme.

How do we implement RoDTEP?

The following steps show how to claim refunds via the scheme:

Step 1: Declaration of the exporter in the shipping bill whether or not they intend to claim RoDTEP on goods/services exported from January 2021.

Step 2: Register within the ICEGATE portal and create a RoDTEP credit ledger account.

Step 3: The exporters can then log in to their accounts and generate scrips for the relevant shipping bills.

Step 4: Once the scrips are generated, the refund will be credited and reflected in the exporter’s ledger account and will be available for utilization in payment of the eligible duties and during imports or for transfer to any other importers.

So far, we’ve been focusing on the composition of RoDTEP, while it has received the seal of WTO approval, the Indian export industry’s response to RoDTEP painted a gloomy picture. Several concerns have caused this cautious response from the industry. RoDTEP has kept sectors such as pharmaceutical, iron and steel, organic and inorganic chemicals outside of its eligibility purview, this for instance puts the engineering sector at a disadvantage due to the use of steels and alloys with a higher tax burden. Thus, the rates only partially compensate for the unrebated taxes, while a huge portion of the taxes on the raw material stage will be exported abroad. Further, Special Economic Zones (SEZ), Export-Oriented Units (EOUs), Advance Authorization holders, Operators under MOOWR schemes, etc. are also excluded from the scheme benefits.

Another point of concern is the fall in the benefit rate with RoDTEP (0.1% to 4.3%) vs MEIS which provided a higher average benefit rate between 2% - 5%. The primary objective of the RoDTEP scheme was to provide a level playing field to exporters, however, the lower benefit rates and exclusion of certain key sectors have put a heavy cloud of doubt on exporters causing them to most likely revisit pricing strategies very soon to realign the prices in accordance with the new scheme.

The RoDTEP scheme has just begun to roll out this year and what needs to be seen is if the export industry’s wariness regarding the scheme causes the government to revisit the rates and benefits. At the same time, this scheme has been established with an objective to be progressive, serving the Indian Government’s twin objective of rewarding the exporters and meeting the WTO mandates. We will have to wait and watch the evolution of this scheme in the days to come. Do share your thoughts in the comments section below.