FOREIGN TRADE POLICY \'05 TO DISCONTINUE DEPB

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Foreign trade policy '04-05 will officially bring the curtains down on the duty entitlement passbook (DEPB) scheme - a controversial instrument for export promotion though reckoned to be the most useful one by exporters.

The policy is likely to pronounce that DEPB will cease to exist effective 1 April, '05. The scheme, therefore, will terminate in just over eight months from now.

The DEPB concept of making available raw materials to exporters at ideal international prices has been under constant attack in the WTO and various bilateral fora, due to its alleged subsidy character.

The Kelkar Committee had recommended annulment of the DEPB. Despite a strong premonition about the impending removal of the DEPB during the last couple of years or so, the government has not officially revealed its plan to scrap the scheme so far, causing exporters to hope profusely for its continuance.

DEPB covers 55% of the country's exports. Exporters generally prefer DEPB to other export promotion schemes including the duty drawback scheme.

The government will not, however, retract from the principle of unburdening exports from duties. "The government agrees that duties should not be exported.

But anyway the import tariffs and countervailing duties that correspond to excise duties are being trimmed.

Therefore, duty neutralisation schemes too are losing their relevance to an extent," said a senior official.

A new scheme encompassing the non-controversial elements of all export promotion schemes may, however, come in, but it is unlikely this year.

The commerce ministry's intention is to include the new scheme in the '05 revision of the foreign trade policy, given the feedback to its proposal from the revenue department.

The stated objective of the DEPB is to neutralise the incidence of customs duty on import content of the export product. In actual practice, however, exporters get credit even for domestic sourcing of inputs.

It is reckoned that the import tariff may hike the cost of domestic inputs as well.

Under the DEPB scheme, exporters are granted duty credit against export product, as percentage of FOB value of exports.

DEPB credit entitlement is freely transferable, but the benefits of such transfers attract income tax.

Plantation and aqua-culture sectors stand to gain from the foreign trade policy to be announced in August with duty-free import of equipment, fertilisers, pesticides and other incidental goods.

Coupled with IT benefits provided to agro-processing units in the budget, the proposed facility for duty-free import of inputs is expected to give a fillip to agri goods exports, according to official sources.

The policy, in tune with conventions, will mainly deal with export of manufactured goods. Efforts to enhance export of non-IT services may mostly be through procedural simplifications and easing of regulatory setups, rather than tax sops.

Also expected in the policy is lowering of the threshold limit for being a status holder exporter.

This will broaden the community of status holders, thereby benefiting SMEs, sources said. The policy will also take steps to reduce transaction cost.

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