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INDIA: Indian Government Plans to Extend Tax Exemption Scheme to All Textile Products

Plans are in place to broaden the range of textile businesses entitled to claim domestic tax exemptions. Under the current terms of the Rebate of State and Central Taxes and Levies (RoSCTL) scheme, only ready-made garments (RMG) and made-ups producers may claim the tax rebate. The mooted changes will see all textile businesses able to benefit.

The scheme works by allotting Indian manufacturers tax exemption certificates, which can be used to claim refunds on a variety of taxes, including VAT on fuel for goods transportation, electricity tax, stamp duty, and GST on inputs.

The RoSCTL was introduced as a one-year scheme in early March this year as part of the government’s efforts to boost India’s RMG export sector in the face of increasing competition from rival exporting countries, such as Bangladesh, Sri Lanka, Pakistan and Vietnam. The move to extend the scheme to all textile producers, potentially indefinitely, is now seen as a means of countering fallout from the impending withdrawal of an existing export incentive scheme – the Merchandise Export from India Scheme (MEIS).

The MEIS is a tax support scheme for micro-businesses and SMEs, as well as all labour-intensive export-oriented industry sectors. Entitled companies can claim duty exemption on imported production inputs up to 4% of the total value of their exports. A phased withdrawal of the MEIS started 1 January this year following complaints that India’s export subsidies violated WTO commitments.

Content provided by Picture: HKTDC Research
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