The Ministry of Commerce & Industry on 1st September, 2020 has capped benefit under the Merchant Export from India Scheme (‘MEIS’) at Rs. 2 Crore per exporter for the period 1st September 2020 to 31st December 2020, displeasing the manufacturers in India. The ceiling may be subject to further downward revision to ensure that total claim under MEIS during the above-mentioned period does not exceed INR 5,000 Crore allocated towards MEIS by the Government.
MEIS introduced in April 2015, for manufacturers in India, was a pleasant surprise and can be termed nothing less than ‘Cherry on the cake”, in view of the various export incentives provided under Foreign Trade Policy.
The objective of MEIS was to promote the manufacture and export of certain notified goods. It was designed to provide exporters with incentives to offset infrastructural inefficiencies in India and its associated cost by providing duty credit scrips which could be used for payment of a number of duties including the Basic Customs Duty or could be freely traded in the market.
However, it was felt by the Government that MEIS has failed its objective of promoting export and did not yield the desired growth in exports from India. Further, MEIS also in some ways became more of a liability for the Government and did not accentuate the anticipated rate of export of goods made in India worldwide
Statistics reveal that in 2014-15, exports from India were USD 310 Billion, while till 2019-20, it remained range bound to USD 313 billion only. On the other side, liability under MEIS ballooned to about INR 45,000 crore in 2019-20. Wide coverage of MEIS meant that resources were spread across several tariff lines without focus. Additionally, liabilities on accounts of MEIS grew faster than the rate of growth of exports. Apart from the inefficiencies that crept into MEIS, India has also faced hurdles in the WTO with respect to continuation of MEIS, wherein India has been alleged that the export subsidies provided an unfair competitive advantage to recipients which is expressly prohibited under the WTO Rules.
Thus, consecutive effect of above factors combined with newfound fund crunch has forced the Government to cap export benefits under MEIS. Further, any IEC holder who has not made any export with Let Export Order (LEO) date during the period 1st September 2019 to 31st August 2020 or any new IEC obtained on or after 1st September 2020 would not be eligible for submitting any claim for benefits under MEIS. Further, the Government has also discontinued MEIS w.e.f. 1st January 2021. However, no change in the coverage of MEIS and the applicable rates has been made.
It is estimated that 98 per cent of exporters especially MSMEs will benefit under the reward cap as this will remove uncertainty and protect genuine exporters while ensuring “Make in India-Make for the World”. The cap imposed shall save revenue in the hands of the Government which shall be used for supporting the sectors that have potential to grow and contribute towards AtmaNirbhar Bharat and has higher potential for exports.
The Government has already announced a new WTO-compliant scheme called Remission of Duties or Taxes on Export Product (RoDTEP) which may replace MEIS starting 1st January 2021. RoDTEP will allow reimbursement of all embedded taxes including local levies paid on inputs by exporters. This shall lighten up the faces of exporters in India and provide with larger benefits by taking Indian products global.
Smita Singh (Partner, Indirect Tax), Singh & Associates
Rajni Gupta (Senior Associate, Indirect Tax), Singh & Associates