Government Extends Three Key Export Schemes By Another Year

Much to the relief of exporters, the government has extended three key export schemes till March 31, 2020. What is needed, however, is greater clarity on long term schemes and policies, as year-on-year extensions give exporters comfort only for a limited time period.

- Baishakhi Dutta

In a recent notification, the Directorate General of Foreign Trade (DGFT) has said that exemption from IGST and the compensation cess under the advance authorisation scheme, as well as the EOU and the EPCG schemes of the Foreign Trade Policy 2015-20, have been extended up to March 31, 2020.

These exemptions have been extended for exporters buying inputs domestically or importing them for export purposes, under the Export Oriented Unit (EOU) scheme, the Export Promotion Capital Goods (EPCG) scheme and advance authorisation.

The motivation behind the scheme

Before the implementation of GST, with its stated benefit being ‘One Nation, One Tax’, it was the countervailing duty (CVD) that was exempted for selected electronics items. The rollout of the GST model did away with the exercise of providing exemptions. Instead, the deposit and refund process made its way into the system. Unfortunately, getting the refund under the existing GST model typically takes three to four months, adversely affecting the working capital position of a company.

Since the cost of capital is a little high in India, many industry associations requested the government to go back to providing exemptions, as was the practice under the CVD structure. So, finally, in the last fiscal year, the process of exemptions got implemented once again, replacing the deposit and refund process. Though this process made a comeback on a provisional basis, the move was welcomed by the entire electronics industry. And now, the scheme has been extended for one more year.

Immediate outcome

The move was aimed at giving relief to exporters so they would not have to pay IGST at the initial point itself. In the GST regime, they have to pay the indirect tax and then seek a refund, which is a cumbersome process.