The proverbial Damocles sword is hanging over exporters availing the popular yet controversial duty entitlement pass book (DEPB) scheme. With the government on a drive to rationalise incentive schemes and tax exemptions, the heat may be felt by DEPB users as the scheme is slated to expire on March 31.

While exporters are expecting an extension of the scheme, as has been the trend since the last two years, the delay in announcement of the extension is making them cagey.

Although the committee set up to work on an alternative DEPB scheme headed by Planning Commission member Anwarul Hoda is yet to come up with its recommendation, sources said that Budget 2007-08 may announce a roadmap for discontinuation of the scheme.

The DEPB scheme, which seeks to neutralise the incidence of Customs duty on the import content of the export product by way of grant of duty credit against the export product, is non-compliant with World Trade Organization (WTO) norms and has been a subject of some WTO disputes. The non-compliance is mainly because of its non-transparent nature since the reimbursement is based on prefixed rates and is freely transferable.

The government is yet to indicate whether the DEPB scheme will continue for another year. Sources added that an extension should have been announced by this time, as it is time for exporters to do their costing and take orders for the next six months. If exporters do not know what is happening to the DEPB scheme, they would not be able to do their costing and pricing properly, an official said.

The plethora of export promotion schemes, excluding special economic zones (SEZs), cost the exchequer a whopping Rs 34,430 crore in 2005-06. In fact, the finance ministry has asked a leading economic think-tank to do a cost-benefit analysis of the various schemes.

The revenue department has always been against keeping multiple schemes, as it is difficult to administer them. It has supported expanding the drawback scheme to more products as it is considered more scientific unlike its counterpart DEPB.

The revenue departments view point on rationalising tax exemptions and incentives has got support from parliamentarians cutting across party lines. The last meeting of the consultative committee attached to the finance ministry has also supported the view.

At present, the government has close to 11 export incentive and promotion schemes, including SEZs. The schemes include duty entitlement passbook scheme, drawback, export promotion capital goods scheme, duty-free import authorisation, advance licence, export-oriented units, Software Technology Park of India and Vishesh Krishi Upaj Yojana.