RoDTEP Scheme – Remission of Duties or Taxes on Export Product (RoDTEP)

The Government of India (GoI) has introduced Remission of Duties or Taxes on Export Product (RoDTEP) scheme to replace the existing Merchandise Exports from India Scheme (MEIS) and create a fully automated route for Input Tax Credit (ITC) in the GST to help increase the exports in India.

A brief on RoDTEP Scheme

The RoDTEP scheme will be monitored by the Ministry of Finance (MoF). The scheme provides an additional export credit of up to Rs. 68,000 crores and the projected forgone revenue will be up to Rs. 50,000 crores. The following were the other announcements covered on RoDTEP:

• Items will be shifted in a phased manner from existing scheme MEIS to RoDTEP with proper monitoring &audit mechanism
• Create a fully automated procedure for ITC in GST to avoid double taxation
• Privileged Textile and other export sectors that are applicable for an incentive of up to 2% of MIES shall be replaced with RoDTEP scheme
• MoF has allocated a budget of Rs.1,700 crore to provide higher insurance cover through Export Credit Guarantee Corporation (ECGC), to increase the lending opportunities from banks

Background

Dispute Resolution Panel (DRP) of World Trade Organisation (WTO) ruled that India’s export subsidy schemes violate global trade norms and has been asked to withdraw some export subsidy programmes, since subsidy schemes run by the Indian government were giving undue advantage to Indian businesses. Indian Government has appealed to the appellate body of WTO, challenging the decision of DRP. Currently the appeal is pending before the dysfunctional appellate body of WTO which provides time to Indian Government time to replace the present subsidy schemes. Meanwhile, Indian government decided to discontinue existing export incentive schemes which are in compliant with global trade rules.

The affected subsidy schemes of Indian Government due to the ruling of DRP of WTO includes Merchandise Exports from India Scheme (MEIS). Indian Government has come up with a WTO compliant proposed scheme called ‘Remission of Duties or Taxes on Export Products’ (RoDTEP) to replace the present scheme of MEIS.

What is RoDTEP?

RoDTEP is a new scheme to replace the existing MEIS scheme for exports of goods from India, which aims to reimburse the taxes and duties incurred by exporters such as local taxes, coal cess, mandi tax, electricity duties and fuel used for transportation, which are not getting exempted or refunded under any other existing scheme. The rebate would be claimed as a percentage of the Freight On Board (FOB) value of exports.

The Indian government has recently approved this scheme and will be notified in a phased manner and accordingly Items will be shifted from existing scheme MEIS to RoDTEP with proper monitoring &audit mechanism. This scheme will incentivise exporters at an estimated cost of Rs. 50,000 crore to the exchequer.

Key differences between MEIS and RoDTEP

Aspect	MEIS	RoDTEP
Schema of Incentive	Additional Incentive on Exports of goods apart from other refunds and drawbacks available on undertaking the said exports.	Refund of Indirect taxes on Inputs used in the manufacture of exported product which is not being currently reimbursed by any other existing schemes.
WTO Compliance	Non-Compliant with WTO trade norms	Compliant with WTO trade norms
Incentive Percentage	2% to 5% of FOB value of Exports.	Product based % way of reward – Expected to be lesser than the existing MEIS Incentive scheme [To be notified later]
Mode of Issuance	Issuance in the form of transferable scrips (Hardcopy/ downloadable)	Issuance in the form of transferable duty credit/ electronic scrip which will be maintained in electronic ledger.
Transferability	Freely Transferable	Freely Transferable

Objectives of RoDTEP scheme?

• To boost exports Scheme for enhancing Exports to International Markets
• To make Indian exports cost competitive and create a level playing field for Indian exporters in International market
• To give a boost to employment generation in various sectors
• It aims to boost dwindling outward shipments

Features of RoDTEP

• Presently only 30% of total actual indirect taxes incurred by the exporters are refunded through existing MEIS scheme
• Under the WTO rules, certain duties like state taxes on power, oil, water, and education cess are allowed to be refunded
• In this backdrop, RoDTEP scheme framed in accordance with WTO guidelines which reimburses the taxes/ duties/ levies, at the central, state and local level, which are currently not being refunded under any other mechanism, but which are incurred in the process of manufacture and distribution of exported products and the following taxes will be refunded through this scheme
• Taxes include VAT, Central excise duties on fuel used for transportation, electrical duties, which are not getting exempted or refunded under any other existing mechanism.
• Earlier incentives are provided in the form of transferable Scrips, but this new scheme aims at creating an Electronic credit ledger in the customs system which enables digital refund to exporters, duties and taxes levied at the centre, state and local levels.

DGFT Clarification on MEIS Scheme for shipments on or after 01.04.2020

With approval of the RoDTEP scheme by Cabinet on 13th March 2020, to replace the ongoing MEIS scheme as publicized vide PIB Press Note dated 13th March 2020, the Directorate General of Foreign Trade (DGFT) had been receiving queries from the members of the trade, as to in what manner benefits under MEIS will be available under the FTP beyond 31.03.2020, the then envisaged end date of the FTP 2015-20, which has since been extended till 31.03.2021.

It is clarified by the Directorate in the trade notice 03/ 2020-21 dated 15^th April, 2020 that:

1. Benefits under MEIS for any item/tariff line /HS Code currently listed in Appendix 3B, Table 2 (MEIS Schedule) will be available only up to 31.12.2020;
2. Prior to 31.12.2020, as and when an item/tariff line/HS code is notified to be covered under RoDTEP Scheme, it would at the same time be removed from coverage under MEIS;

Conclusion

Implementation of RoDTEP replacing MEIS would make India a compliant exporter in the international market. Reducing the incentives to the exporters would whack the exports by India.