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Still long way from tax refunds
July, 17th 2009

The government is still unclear on handling exporters long-standing demand of getting a reimbursement of state-level taxeslevies which account for an estimated 4-5% of production cost.

The commerce department is looking at the possibility of introducing a new scheme for offsetting taxes that are not being reimbursed by states in this years foreign trade policy. It is also exploring the option of factoring the taxes into the existing input duty neutralisation schemes like duty drawback and DEPB (Duty Entitlement Passbook Scheme) by increasing the reimbursement rates, a government official has said. Interestingly, the measures to be taken for reimbursing the state-level taxes to exporters are also tied to the structure of the proposed goods & services tax (GST) being worked out between the Centre and the states. In the GST, which is scheduled to be implemented from the next fiscal, there could be some taxes imposed by the municipal department like Octroi and purchase tax, which may not be subsumed in it.

Moreover, there is still no clarity on the issue of how the state-level GST will be reimbursed to exporters (whether it will be exempted or refunded and who will refund it). While the GST does provide for zero-rating of taxes for exporters, we do not yet know how it will be done. There also has to be some arrangement in the interim period, till the GST is implemented, for reimbursement of state taxes. All this is being looked at by the government, the official added. With the ongoing slowdown in the world market making Indian exports increasingly non-competitive, there is more pressure from the industry on the government to come up with a reimbursement scheme for state taxes.

Taxes imposed at the state level like octroi, mandi tax, sales tax on petroleum products, electricity tax and municipal cess add up to about 4%-5% of the production cost of exports, according to export body Fieo.

The directorate general of foreign trade (DGFT)the commerce department arm directly involved in framing the FTPhas already held a series of meetings with industry bodies on the issue.

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