The new foreign trade policy, which is being prepared by the commerce ministry, will be aligned with the Goods and Services Tax (GST) only after implementation of this indirect tax mechanism.

The new policy is likely to be announced by the next government at the Centre by mid-2009, while the GST is likely to be implemented from April 1, 2010.

The current foreign trade policy of 2004-09 was unveiled by the United Progressive Alliance government on September 1, 2004 and was to expire on March 31, 2009. However, the Directorate General of Foreign Trade (DGFT) under the commerce ministry had extended its tenure till a new policy was ready.

The foreign trade policy has several export promotion measures that reimburse indirect levies charged on exports. These levies will now be subsumed under the proposed GST and will have only two slabs one for the Centre and the other for the states. Therefore, the new export policy will have to specify how the current benefits given to exporters are matched with the proposed GST rates.

We expect the new policy to be released by mid-2009. Till the GST mechanism is in place, provisions of the policy will not be changed. This is to ensure there is no confusion. Once GST is rolled out, the foreign trade policy will be modified to take into account the new taxation mechanism, said a government official requesting anonymity.

Officials are still not clear if the state-level GST levied on exporters will be reimbursed. At the moment, many state-level duties are not reimbursed to exporters.

The DGFT has already started consultations with various export-related organisations and industry lobby groups on the new Foreign Trade Policy.

Officials maintained that the new government would take a call whether the present structure of the foreign trade policy should be continued.

The process of consultations will go on till April 20, after which the suggestions will be compiled. Thereafter inter-ministerial consultations will begin. The commerce ministry wants to be ready with the recommendations when the new government is in place, the official added.

Before the current policy was released, foreign trade procedures were spelt out through an export-import policy. This mechanism was prevalent from 1992 to 2004. The UPA government replaced this with the current five-year trade policy to bring stability and incorporate sector-specific export promotion measures.

Exporters have been demanding a host of benefits in the new policy, including continuation of the Duty Entitlement Passbook Scheme, which was extended till further notice by the commerce ministry. This scheme, which is not compliant with world trade rules, reimburses indirect tax levied on inputs used by exporters.

Representatives of the Federation of Indian Chambers of Commerce and Industry (Ficci), who met DGFT officials today, demanded customised schemes to help exporters tide over the liquidity crisis, reduce transaction time and other costs related to foreign trade.

Pointing out that reimbursement of Value Added Tax levied on exporters took about 12 to 15 months, Ficci demanded refund of the Fringe Benefit Tax and Service tax.