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The bottomline of automobile and pharma companies could take a hit as the new duty drawback scheme announced by the Finance Ministry on Friday brings down the curtain on the Duty Entitlement Pass Book (DEPB) scheme from September 30.
Engineering goods (including automobiles), chemicals (including pharma) and synthetic yarn are the three sectors that have gained most from the DEPB scheme. These three account for up to 60 per cent of the total benefits under the DEPB.
The new scheme will cover nearly 4,000 items, including 1,100 new ones. The minimum rate of drawback will be 1 per cent and the maximum for some items (such as manmade textiles) could be over 10 per cent. The final rate will be notified by September 23.
The Finance Secretary, Mr R. S. Gujaral, said: “The basic intention is not saving revenue but a uniform rate of export incentives.”
He said that the items that were earlier under DEPB would suffer a modest reduction in the existing DEPB rates to the extent of 1-3 per cent. The new rates have been computed after reducing the ad-hoc elements, including decrease in Custom duty.
To ensure that exporters working under DEPB do not suffer much, the Government has decided that the drawback rate be capped at 5.5 per cent for many items. However, this cap will not be applicable for 340 items. Mr Gujral also clarified that not only those items transferred from DEPB to the duty drawback scheme would get less benefits, but even the ones that were already covered under the duty drawback schedule would suffer a minor reduction.
“The reduction is mainly on account of the reduction in basic Customs duty on crude petroleum from 5 per cent to nil as well as a reduction in Central Excise duty on diesel from Rs 4.40/litre to Rs 2.40/litre,” Mr Gujaral said. While there would be a minor reduction in rates for the most other items, the Ministry claimed to have taken the decision to ensure that reduction was capped at 10 per cent of the existing rates.
There will be no value cap on items where the drawback rate is up to 3 per cent. This means the duty will be refunded as a percentage of the total value and there would be no ceiling on the absolute amount.
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