Finance Ministry decided to Discontinue with Tax Rebate Scheme DEPB beyond 30 June 2011

The Union Finance Ministry on 18 May 2011 declared that the tax rebate scheme DEPB would not be extended beyond 30 June 2011 as the government is losing Rs 8000 crore on account of the scheme every year. The decision would help the government to store its revenues. However corporate India decried the move reasoning that the move would make exports uncompetitive and severely impact growth momentum of the economy.

Major beneficiaries of the DEPB include automobile exporters like Bajaj, Hyundai, polyester fibre exporter Reliance Industries, as well as steel and metal companies including Hindalco, Essar Steel, Ta ta Steel and SAIL.

The 14-year-old Duty Entitlement Pass Book (DEPB) scheme is the most popular among exporters, especially in the engineering and automobiles sectors.

Under the DEPB scheme, exporters get refund of duties on import content of their export products. The tax refund mechanism was considered to be non-compliant with the World Trade Organisation (WTO) rules. The Indian government had therefore been trying to phase-out the scheme for past few years. DEPB is reckoned to be non-compliant with WTO as the tax refund is not based on actual import content (and hence tax) of the export product but on certain assumptions of that. The scheme therefore permits the importing country to challenge and neutralise the benefit by imposing countervailing duties on imports from India.

The government feels that the DEPB beneficiaries could now rely on the duty draw back and other similar tax remission schemes.