Introduction to RoDTEP
The Remission of Duties and Taxes on Exported Products (RoDTEP) scheme is one of the key export promotion measures launched by the Government of India. Introduced in January 2021, RoDTEP aims to boost exports by alleviating hidden taxes and duties that were previously non-refundable under any other mechanism.
RoDTEP provides rebates on central, state, and local levies and taxes applicable to input products used in the manufacturing of export goods. The refunds under RoDTEP enhance the competitiveness of Indian exporters in global markets. Over 10,000 export items across major sectors stand to benefit from the RoDTEP scheme.
This article provides a comprehensive guide to the RoDTEP scheme, covering its key components, benefits for exporters, operational framework, compliance requirements, and other salient aspects. For exporters, adequate knowledge of the RoDTEP scheme enables them to maximize the incentives and tax reliefs offered.
Historical Background of Export Incentive Schemes
India has historically implemented various incentive schemes to boost exports and integrate domestic manufacturing into global supply chains. Some prominent examples include:
Duty Drawback Scheme
Introduced in 1961, it provides refunds of customs and excise duties on raw materials and intermediates used in export production. The focal point is the remission of import duties.
DEPB: Duty Entitlement Passbook Scheme
Since 1997, DEPB has issued duty credits as a percentage of the FOB value of exports. Could be used to offset import duties on subsequent purchases. Phased out in 2011.
Focus Market Scheme
Launched in 2006, it involved duty credit scrips as a percentage of export turnover to specified markets. Provided market diversification incentives.
Focus Product Scheme
Started in 2007, it extended duty credit scrips for the export of identified products with high domestic production costs. Promoted exports of select lines.
MEIS (Merchandise Export Incentive Scheme)
Introduced in 2015, MEIS offered duty scrips at fixed rates for export items. Scrips were transferable with minimal restrictions. Discontinued in 2020.
While these schemes provided a significant boost to exports over decades, many were challenged at the WTO, citing prohibited subsidies. With RoDTEP, India has formulated an export scheme fully compliant with global trade norms.
Key Components of RoDTEP
The RoDTEP scheme involves the following key aspects:
Refund of Embedded Levies
RoDTEP aims to refund embedded taxes and duties that were previously non-recoverable for exporters. This includes all central, state, and local duties, taxes, and levies on input products used in the manufacturing of exported goods.
Examples: Taxes on electricity, fuel, mandi tax, stamp duty, factory gate duties, etc. This relies on the principle of ‘as if exported finished goods were sold domestically’.
WTO-compliant rebate mechanism
RoDTEP rebates are provided only to the extent of actual duties and levies borne and are not linked to product valuation. This makes it fully WTO-compliant, unlike prohibited export subsidies.
Coverage of goods and services
The RoDTEP scheme covers physical exports as well as outbound shipments of services from India. Service providers can also claim refunds on applicable hidden levies.
End-to-end electronic processing via customs ICES ensures transparency and faster settlement of RoDTEP rebates. Scrips are maintained in digital credit ledger accounts.
Incentivizing SME Exports
RoDTEP especially incentivizes SME exporters, who bear the disproportionate impact of unrefunded domestic taxes given limited bargaining power.
RoDTEP rates for over 10,000 tariff lines are set as a percentage of the free-on-board (FOB) value. Rates are revised periodically to account for new eligible items.
Advantages and Benefits of RoDTEP for Exporters
The Remission of Duties and Taxes on Exported Products (RoDTEP) scheme offers several key advantages and tangible benefits for Indian exporters across sectors. Some of the major ones are:
Relief from Cascading Taxes
RoDTEP plugs the gaps present in other duty remission schemes and provides comprehensive relief from cascades of taxes across the production and distribution value chain. Exporters can get refunds on the cumulative incidence of indirect taxes paid on inputs at various stages like procurement, manufacturing, warehousing, outbound logistics, etc. This alleviates the buildup of unrecoverable taxes in the system.
For instance, an apparel exporter can claim a refund of mandi tax paid on cotton procurement, electricity duty borne by the fabric mill, stamp duties applicable to transport permit documentation, etc. through a single RoDTEP rebate claim. This provides significant ease in doing business.
Improved global competitiveness
The comprehensive tax equalization offered by RoDTEP allows Indian exporters across sectors to remain competitive compared to global peers from nations with a minimal or nil incidence of domestic taxes and levies.
For example, countries like Vietnam and Bangladesh have very low internal indirect tax rates. RoDTEP brings exporters on level ground through refunds.
Incentive for Exporting Services
The RoDTEP scheme brings services exports like IT, health, tourism, education, engineering services, etc. under the ambit of duty remission, marking a major step.
Service providers can claim refunds on taxes like electricity duty, GST paid on input services, etc. to improve competitiveness. This is a major motivator for increasing service shipments.
Lowered Compliance Burden
The automated, electronic processing integrated with the Customs ICEGATE platform reduces the paperwork and documentation follow-ups associated with past schemes. This considerably eases the compliance burden for obtaining timely RoDTEP refunds.
Stable Refund Mechanism
RoDTEP provides long-term stability and policy certainty to exporters as it is based on the principle of refunding actual duties borne rather than subsidies. This removes uncertainties around the extension of earlier WTO-non-compliant schemes.
As RoDTEP refunds are designed to be fully WTO-compliant, exporters remain assured of the continued availability of the scheme. This provides confidence to make investments and strategic decisions irrespective of any future adverse orders against India at WTO.
Benefits of the SME Sector
RoDTEP encourages SME exporters to tap new markets by offsetting the impact of domestic taxes that disproportionately affect them due to a lack of purchasing power advantages, unlike larger entities. The refunds provided give them a level playing field.
Challenges and Limitations of RoDTEP
While RoDTEP has several advantages, exporters also need to be cognizant of the following limitations of the scheme:
Time Lag in Refund Settlement
The process of refund settlement through customs after exports takes 60–90 days, currently resulting in blocked working capital. Needs further streamlining.
Absence of Brand Rate Facility
Unlike the duty drawback, the brand rate facility allowing entity-specific tax refund rates is unavailable under RoDTEP. Common rates may not adequately cover actuals.
Errors in Computing Embedded Taxes
Assessing eligible embedded taxes and levies is complex. Any methodology gaps can result in short refunds. Requires coordination between agencies.
Partial Coverage of Export Items
Over 350 common export items are still outside RoDTEP coverage, representing a gap. Inclusion relies on lobbying by sectoral industry bodies.
No Refunds on Key Central Taxes
Major central taxes like corporate income tax, import duties, and fuel excise still remain outside the RoDTEP rebate.
Treatment of SEZ Sales
The exclusion of supplies by SEZ and EOU units from the scheme remains a gray area requiring clarification.
Industries benefiting from RoDTEP
The RoDTEP scheme encompasses a diverse range of export items from various industry sectors within its ambit. Some of the major industries gaining substantially from RoDTEP include:
Textiles and Apparel
Around 40% of the 10,342 tariff lines covered under RoDTEP belong to the textiles and apparel sectors. Exporters stand to benefit from refunds on state electricity duties, mandi taxes on cotton and fabrics, stamp duties applicable to financial transactions, etc.
Auto and Auto Components
Auto sector exporters get relief from fuel taxes, electricity duties, stamp duties, etc. applicable to manufacturing operations. It helps offset key input costs and incentivizes exports.
Plastics manufacturers gain through reimbursements on central excise duty and VAT paid on the procurement of key raw material inputs like polymers, resins, reagents, etc. used in the production process.
Leather exporters get relief from state levies associated with livestock rearing and slaughtering operations, like mandi fees on animal sales, duties on feed stock used in ranches, etc.
The rebate of mandi taxes and electricity duties on cold storage and warehouse facilities to store produce helps reduce costs for agricultural exports like cereals, meat, processed foods, etc.
Pharma exporters offset state and local duties on warehousing and distribution of medicines, along with electricity duties, making bulk drugs and formulations more competitive globally.
IT service providers get refunds on any taxes paid on various input services like telecom, technical testing, software procurement, etc. for the delivery of software and ITES exports.
RoDTEP and Global Trade Dynamics
RoDTEP aims to align India’s tax refund framework with global trade practices. Some aspects in this context are:
Countering Subsidy Regimes
RoDTEP rebates counter export subsidies provided by competing manufacturing economies like China, Malaysia, etc. to maintain a level playing field.
Discouraging Duty Evasion
The refunds discourage exporters from illegally claiming the drawbacks of taxes already refunded under RoDTEP to improve compliance.
Strategic Sectoral Thrust
The inclusion of products like steel, pharmaceuticals, and chemicals provides a strategic boost to these sectors.
Expanding Service Exports
Service providers stand to benefit significantly as RoDTEP is among the few WTO-compliant schemes covering service exports.
Supports a self-reliant India
By incentivizing domestic manufacturing, RoDTEP promotes the Make in India and self-reliance vision.
Lowered export costs
Automation and simplification enhance the ease of availing of RoDTEP rebates compared to cumbersome procedures under past schemes.
Compliance and documentation for RoDTEP
The operational framework for availing RoDTEP refunds involves the following steps:
Registration on the Customs Portal
Exporters have to first register on the Indian Customs ICES portal to access services and submit documents.
Declaration on Shipping Bill
At the time of exporting, a declaration has to be made on the shipping bill that a RoDTEP refund will be claimed against that export item.
Submitting export details
After exports, all relevant details are submitted online on the customs system via the filing of the EGM, shipping bill, etc.
RoDTEP Scroll Generation
The ICES system processes shipping bills, and scrolls are generated with the calculation of the RoDTEP amount against each export consignment.
Exporters can redeem the RoDTEP amount either as a direct transfer to a bank account or as an e-scrip maintained in their credit ledger account on ICES.
Reconciliation with GST Returns
The availability of ITC has to be confirmed while filing GST returns to avoid double-claiming of the same taxes under both GST and RoDTEP.
The RoDTEP scheme for exporters marks a major step by the Indian government to institute a comprehensive and WTO-compatible system for alleviating embedded taxes. RoDTEP consolidates various past incentive schemes into a streamlined framework, enabling tax neutralization for over 10,000 export items.
For exporters, RoDTEP offers tangible benefits like relief from cascading taxes, easier refunds, expanded sectoral coverage, and the incentivization of SMEs. Proper awareness of the scheme’s advantages, refund processes, and compliance requirements is vital to harnessing the benefits under RoDTEP.
While concerns exist around aspects like limited product coverage and time lag in settlement, these are expected to be ironed out by customs and DGFT over time. Overall, the RoDTEP scheme provides the necessary impetus to boost India’s export competitiveness and integrate domestic manufacturing into global value chains.
How is the rate of the RoDTEP incentive calculated?
The RoDTEP rates are fixed as a percentage of the free-on-board (FOB) value of exports. The rates for over 10,000 tariff lines are set by the RoDTEP Committee, chaired by DGFT, based on an assessment of aggregated taxes and levies.
What is the maximum value allowed under RoDTEP per shipment?
For each tariff line, a value cap per unit exported is prescribed. The total refund under RoDTEP is capped at the defined value threshold for the product, even if the actual FOB value is higher.
Can exporters claim actual unrefunded taxes instead of the notified RoDTEP rate?
No, the RoDTEP rates, as notified, are fixed for each tariff line. There is no facility for claiming actual unrefunded taxes if they are higher than the prescribed rate.
Is separate registration required to claim a RoDTEP refund?
Exporters have to register on the customs ICES portal to claim RoDTEP. No separate registration is required if you are already registered as a GST taxpayer.
How are refunds provided under RoDTEP?
RoDTEP refunds are provided either as a direct transfer to a bank account or as transferrable duty credit scrips maintained in the e-scrip account on the customs portal.