The Re-Beginnan | Vol.2 | Issue 10
The Covid19 outbreak has affected many and repercussions of it are being aggravated for the exporters with ceiling limits being imposed on benefits under Merchandise Export from India Scheme (MEIS).
Soon to be replaced, with a more WTO-compatible scheme — RoDTEP (Remission of Duties and Taxes on Export Products), limits to MEIS benefit has come as a big blow to the exporters as they might now lose over three-fourths of duty remission. Merchandise exports saw a colossal crash of 60% in April that recovered back to 37% and 12% in May and June respectively.
What’s the Deal?
– MEIS benefits remitted to exporters in FY19 were around INR 40,000 crore that has been now capped to INR 9,000 crore for the period of April-December 2020 by the Department of Revenue.
- Online MEIS module system for exporters to avail incentives has been blocked by the Ministry of Commerce since 23rd July citing the cap enforced by the Department of Revenue.
- The Directorate General of Foreign Trade has asked the Department of Revenue and CBIC (Central Board of Indirect Taxes & Customs) to cease registration of scrip applications or incentives under the scheme for shipping bills dated 1st April 2020 and beyond.
- Commerce Department has been asked by its revenue counterpart to review MEIS rate and coverage so that incentive allocation does not exceed INR 9,000 crore.
- Piyush Goyal, Commerce and Industry Minister sent a letter to Finance Minister Nirmala Sitharaman on 21st July 2020, seeking a review of the revenue department’s decision.
How will Exporters be Impacted?
- With the extension of the scheme announced for the current financial year, businesses had planned their product costing and discounting schemes factoring in MEIS benefits. With scrips ranging between 2–5% depending on product and destination, reduction or withdrawal of benefits would result in corrosion of margins and cash.
- Cash flows have been affected to an extent of USD 4 billion as scrip applications are not being cleared said Sharad Saraf, President, FIEO (The Federation of Indian Export Organisations).
- Textile and agricultural exports to be impacted the most as they enjoy higher rates of incentives under the scheme.
- Vehicle manufacturers with high export value to also be consequentially impacted.
- MEIS has significantly helped Indian exporters to maintain competitiveness in the global market, that will now vanish. This will further weaken the already afflicted export sector.
- With reduced benefits, MEIS scrips trading in open markets would reduce and net importers buying scrips from the open market (at 2–3% discounted rate) would be affected.
The Way Forward…
A ray of light came in for all exporters when Commerce & Industry Minister Piyush Goyal said “We are in dialogue with the requisite authorities. MEIS is not going anywhere. It is a cash flow issue.” He also said, “We are trying for an early solution which is a win-win for everyone.”
