FIEO president, Dr A Sakthivel’s talking points for pre-budget consultation meeting with FM on Union Budget 2022-23 

•    Encouragement to Overseas Marketing for Exports: 

o    Overseas marketing is a big challenge for exporters, more so for MSMEs, as it entails a very high cost. We need to bring “Double Tax Deduction Scheme for Internationalizations” to allow exporters to deduct against their taxable income, twice the qualifying expenses incurred for approved overseas activities including market preparation, market exploration, market promotion and market presence. A ceiling of USD 5,00,000 may be put under the Scheme so that the investment and tax deduction are limited (Singapore is providing a similar facility to its SME units for aggressive marketing).

•    Fiscal and Tax support to address Logistics challenges: 

o    Export sector is facing an acute shortage of containers as we are dependent on imported containers though coastal shipping is gradually gaining traction in the country. The container manufacturing requires a special kind of steel which provides a competitive edge to China which manufactures over 80% of global containers. We need to encourage domestic manufacturing of the containers by providing fiscal benefits to the container manufacturing in the country which is all the more required as we are looking to US$ 1 trillion exports in the next 5 years.

•    Developing an Indian Shipping Line of global repute: 

o    The other challenge faced by the export sector is the rising freight cost and our dependence on global shipping companies with a very minor share of Indian shipping lines in India’s global trade. India’s outward remittance on account of transport services is increasing year after year. We remitted around US$ 65 billion as transport services in 2020 and looking into abnormal increases in the freight in 2021, the figure is likely to cross US$ 100 billion. When we are looking at increasing our international trade to USD 2 trillion in an economy of USD 5 trillion, the outgo on transport services will increase to USD 150-200 billion. Since the Shipping Corporation of India is being disinvested, we need to encourage large Indian entities to build an Indian shipping line of global repute. Such shipping lines, even if it gets 25% of the total business, can save US$ 30- 40 billion annually and will also reduce our dependence on foreign shipping lines and their dictates. The tax advantage availed by shipping lines in some countries may be considered to encourage them to register such ships in India.

•    Restoration of facility for Import of Trimming and Embellishments under Customs Notification No.2/2021 dated 1st of February,2021: 

o    The MSME exporters source most of their raw material from the domestic market and import only small lots of trimmings and embellishments under the EPC Scheme. Most of the exporters import these items because of the buyer's nomination. Hence need to be sourced from defined sources and within sharp timelines. This facility provided required flexibility to the smaller exporters to import such items just in time to meet the delivery schedule. The total duty foregone under the scheme in 2020-21 has been less than Rs.300 Cr as the duty foregone value against the utilised entitlements from various EPCs such as AEPC, CLE and Handicraft was Rs.66.4 Cr, 66.22 Cr and Rs.88 Cr respectively.

    Such entitlement certificates should only be issued for import purposes and in case, any domestic unit including SEZ is able to meet such requirement of exporters, the entitlement certificates may be surrendered to the concerned EPC and invalidation letter in lieu of the same may be issued so that the apprehension that the certificates may be utilised both for imports and procurement from domestic sources can be addressed.

•    Services rendered to foreign national and paid in Free Foreign Currency to be given IGST /ITC Refund:

o    Services Exports are growing with good performance from IT and IT enabled services which accounts for two-third of India’s Services Exports. Services sector is not getting any support as SEIS benefits are also no longer available. The travel & tourism sector has been hit heavily due to pandemic and needs to be given encouragement. Mode-2 of services (service provided to a foreign national in India paid in free foreign currency) have neither been provided exemption from IGST nor refund of accumulated input tax credit. While we appreciate the new provision incorporated under Section 15 of IGST Act providing the refund of IGST on supply of goods to tourists leaving India at the International airports, it is equally necessary that no taxes are imposed on the services being provided to them during their stay in India. The travel & tourism sector including hotel and hospitality is already burdened with high taxation and tourists are preferring South East Asian countries. Tourism has one of the highest capital employment ratios and therefore, refund of IGST/ ITC facility to Mode-2 of services will go a long way in providing competitiveness to the sector and helping the country to take its tourism earning to US$ 100 billion in next 5 years.