State-owned oil companies avoid buying certificates under rebate program

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NEW DELHI : Banks and state-owned oil companies, a sign of growing uncertainty in global trade, are refraining from buying tradable certificates issued to exporters under the Reimbursement of State and Central Taxes (RoSCTL) program ) to avoid liability in the event that exports do not happen.

The RoSCTL program was introduced last year to provide rebates on taxes and levies already paid by exporters on inputs. The rebate is not granted in cash but in the form of negotiable certificates, which exporters can sell to importers.

However, growing uncertainty over export payment amid geopolitical concerns and supply chain disruption has caused the value of scrips to decline by up to 20%, leading to losses for exporters.

“The RoSCTL program has been brought up by the Ministry of Finance and the Central Board of Excise and Customs (CBIC). By introducing this regime, the government has practically postponed its responsibility for two years. Previously, a certificate worth Rs100 could be easily sold at Rs97-98. However, this is not the case now. One of the clauses of the regime suggests that if there is no export achievement, the responsibility rests with the bearer of the certificate.

As such, there are fewer buyers for these scrips in the market. Major oil importers such as Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Ltd (BPCL) and Hindustan Petroleum Ltd (HPCL), even banks do not buy these certificates as they do not want to take responsibility.

The Commerce Ministry has asked the Finance Ministry to drop the clause or allow the certificate to be generated only after the export is completed, a government official said.

Trade experts said global trade in goods had already slowed in the first half of 2022 as supply chains continued to be affected by the covid pandemic. Supply chain concerns were heightened after the outbreak of war in Ukraine.

Garments and apparel exporters have said the regime, in its current form, is eroding export margins for the domestic textile industry. Clothing manufacturing units face losses of 1,200 crore with discount on tradable certificates rising from 3% to about 20%, according to the Apparel Export Promotion Council (AEPC).

“In the notification, there is a provision that if payment is not made and the exporter does not take responsibility, the importer will be responsible. So unless the certificate belongs to a very trustworthy or reliable exporter, where there is no risk, an importer will not take the certificate from a small business,” he said.

PSUs and banks don’t want to take any risks, especially since scrips are also subject to market premiums and will continue to evolve. “Anyone may wonder why the certificate was purchased on a day when the premium was more or less,” said Ajay Sahai, Managing Director and Managing Director of the Federation of Indian Export Organizations (FIEO).

The exporters argue that the state and central levies are collected in cash and therefore the refund or rebate on these levies should also be made in cash.

In a letter to the government, the exporters said the certificates were traded at discounts of 15-20%, due to which exporters are not getting the expected value under the program. They also alleged that importers reap the full benefits of the scheme at the expense of exporters. Email queries to the Commerce Department, Finance Ministry, IOCL, BPCL and HPCL on Thursday went unanswered as of press time.

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