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Tax credit at higher, older rates
November, 14th 2009

Exporters may continue to get credit for taxes paid on inputs at the current rates despite a reduction in excise and service tax rates earlier in the year.

The government does not want exports to suffer from any disadvantage at a time when there is some improvement, a government official told ET.

The move could give the impression that the government is withdrawing its stimulus package, which it does not want to do at the moment, he added.

Exports have been contracting for the last thirteen months, though the rate of decline has dropped to 11.4% in October as against nearly 40% in May 2009.

A review of the drawback rates reimbursement to exporters of taxes paid on inputs was to happen in the current month. The government had cut excise rates and service tax rates by 2% each earlier this year to stimulate the economy.

If a revision happens at this point of time, drawback rates for several products may go down, the official, who requested not to be named, said. That review may be postponed till after Budget next year, the official added.

A three-member committee, chaired by Planning Commission member Saumitra Chaudhari, works out the drawback rates. The committee has sent a note to the finance ministry asking it to take a decision on whether new rates should be announced this month. The finance ministry is expected to reply soon.

Input duty reimbursement is available to exporters under two separate schemes from which they can pick one. The duty entitlement pass book scheme where exporters are given duty-free import scrips, which can be sold in the market is more popular. The drawback scheme covers majority of textile, handicrafts and leather exporters.

Since the government is specifically interested in protecting labour intensive sectors such as textile, handicrafts and leather, it would hesitate to do anything which could immediately lead to an increase in costs, the official said.

The government does not expect export growth to turn positive before January 2010.

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