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India: Rebate scheme to replace MEIS for all textile products

India will extend the upgraded Rebate of State and Central Taxes and Levies scheme to all textile products. The scheme reimburses garments and made-up exporters all un-remitted input taxes paid at the state and central levels. RoSCTL includes value-added tax on fuel used in transportation, captive power, farm sector, mandi tax, duty of electricity, stamp duty, embedded SGST and CGST paid on inputs and central excise duty on fuel.

This is being done to prepare the sector for an eventual withdrawal of the Merchandise Export Incentive Scheme (MEIS) that flouts global trade rules. Under this scheme, exporters are given incentives equivalent to about four per cent of their export value in the form of duty credit scrips that can be used to pay customs duties and are freely transferable. Since it is a direct export subsidy, and the textile sector’s phase-out period for such subsidies ended in 2018, it would have to be withdrawn soon.

The textile sector has long graduated out of the special dispensation that the WTO extends to vulnerable sectors or countries that need support by allowing them to extend export sops that are otherwise banned. If the MEIS is extended for a longer period to textile exporters, and a WTO member files a dispute, India doesn’t have much of a defense. Hence the need to replace the scheme.