22 Jul 2019, 17:16 — 5 min read
Background: In his previous article Padmanabhan RR listed the export initiatives in the Union Budget 2019. Here he explains how the Merchandise Exports from India Scheme (MEIS) provides some great incentives to exporters.
You can only export your goods, not your taxes. This is the worldwide dictum being followed everywhere. Export incentives go a step further. It seeks to encourage exports by incentivizing the activity. Nations need to export their goods and services. Why, because the higher the export, higher their economic status and higher their capacity to ensure economic upliftment of their people. The recent economic success of China is a case in point. All export led economies of East Asia have demonstrated successfully that producing more than what they need domestically and exporting their surplus to other countries is the surest way to economic success. The case of Singapore is quite pertinent here. Singapore is twice the size of Chennai (but with nearly half the population of Chennai) and it is an economic giant. It exports both and goods and services abroad.
Nations need to export their goods and services. Why, because the higher the export, higher their economic status and higher their capacity to ensure economic upliftment of their people.
But countries like India have to incentivize their exporters so that they remain competitive in the world market. The incentive is apart from refund of duties suffered at the input stage. Even though these are called incentives, in reality, these are cost neutrals, taking into account the infrastructural bottlenecks and high transaction costs. Chapter 3 of Foreign Trade Policy 2015-20 provides for incentivizing firms engaged in both goods and service exports.
Accordingly, there are two schemes as below:
In this article, we examine in detail the MEIS. The evolution of MEIS from 2015 is quite interesting. MEIS replaced at once the extant schemes like Focus Market Scheme (FMS), Focus Products scheme (FPS) and Market Linked Focus Products Scheme (MLFPS). In its earlier avatar, the scheme operated by categorising the world in three segments viz Developed, Developing and Underdeveloped. Country product matrix was given to identify eligibility of a particular transaction for MEIS rewards. That was why, there was a need for a document evidencing that the goods had indeed reached the destination.
Also read: Exports and imports under GST regime
The scheme, over a period of time, evolved into some that was business friendly. There is no longer a country product matrix. Appendix 3B tells us the products that are eligible for reward.
To claim reward, two things are essential:
1. Export promotion copy of the shipping bill
2. Bank realisation certificate evidencing that payment has been realised.
In this digitised era, both the above essential documents are available in soft form that too through the government’s website. It is interesting to note that we have come this far in this regime. Further even the reward in the scrip is also in soft form, that too, almost within 24-48 hours of application.
The reward that comes in the form of scrip can be used to pay only basic customs duty. It is to be remembered that under GST regime, GST is strictly by cash. Since the scrip is freely transferable, in case, an exporter does not have any usage to pay for duty, s/he can as well opt to sell to any third party willing to buy. Of course, an informal sector is engaged in this buying and selling. To ensure that there is fair and transparent transfer, the system ensures that once the sale of scrip is over, the seller has to make the necessary endorsements in the system and only then, the transfer is complete. This means the buyer of the scrip is eligible to use it. And again, as a safety algorithm, once an entry is made, no amendment is possible.
The scheme is capable of making an addition to the profit of an exporter by at least 3%.
But what comes in the way of exporter using this reward? It is lack of awareness!
Also read: How to start an export business
Image courtesy: Shutterstock.com
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Posted byPadmanabhan R R
International Business legal services for exporters and importers
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