New Transfer Plus rule may take toll on exporters’ profits

MUMBAI: Exporters from the western region alone could face Rs 1,500 crore losses due to curtailment of duty incentives under the Transfer Plus Scheme. The director general of foreign trade (DGFT), through a notification on June 12, ’06, capped the duty credit exporters could avail of on incremental exports at 5% with retrospective effect, or for exports effected from April 1, ’05 to March 31, ’06.

“Exporters had passed on benefits of the scheme to their customers by way of bulk discounts. According to data we have collected for the western region, which includes Maharashtra, Gujarat, Goa and MP, losses could tot up to Rs 1,500 crore on account of capping of the benefit with retrospective effect,” said SK Saraf, chairman, Federation Of Indian Export Organisations (FIEO), western region.

Under the scheme, exporters were eligible for duty credit of 15% on incremental export growth of 100% (over the previous fiscal year) and 10% if the incremental growth of exports was more than 25% but below 100%.

This means that if a company exported goods worth Rs 100 crore in fiscal year ’05, it would have to export Rs 200 crore to be eligible for duty incentive of 15% (of Rs 100 crore incremental export) in FY06. A minimum entitlement of 5% was also fixed for incremental export growth of 20% but less than 25% for exports effected from April 1, ’05 to March 31, ’06.

Mr Saraf said FIEO will make a representation to the government asking for a review of the decision to curtail duty entitlement provided to exporters. “Such notifications with retrospective effect are likely to be challenged in court, thereby creating unnecessary and avoidable litigation,” he added.

The scheme was announced by the government in the ’04-09 Exim Policy to boost exports, but was abolished on April 1 this year for fear of it being misused by exporters to gain duty-free credit on their imports.

Exporters have been crying hoarse that while the government has every right to discontinue the scheme, it cannot do away with the benefits accruing to exporters with retrospective effect.

An industry source said that the scheme was framed based on export turnover and not so much on value addition.

This led to some units simply buying exports and trading them to claim duty benefits, and in other cases exports took place with little value being added. Therefore, the finance ministry, the source says, felt the scheme could be exploited simply to gain duty benefits, and urged for its discontinuation.

BV Mehta, executive director of The Solvent Extractors’ Association (SEA), says exporters from his industry alone could suffer losses to the tune of Rs 200 crore due to the government’s capping of benefit with retrospective effect.

He plans to shoot off a letter to commerce minister Kamal Nath, urging the government to grant benefits of the Target Plus Scheme for fiscal year ’06 in toto.

When contacted, additional director general of foreign trade Neeraj Kumar Gupta, said: “Yes, these changes have taken place but they are in consonance with the Foreign Trade Policy provisions which clearly stated that the policy was due for a change in April ’05 itself.”