The export incentive framework has undergone many changes in the past few years. The transition from Merchandise Exports from India Scheme (MEIS) to Remission of Duties and Taxes on Exported Products (RoDTEP) has had a huge impact. This transition was extremely necessary in terms of aligning the trade incentives of India with the global norms. 

What is MEIS? Why was it introduced?

The Merchandise Exports from India Scheme (MEIS) was launched in India in 2015 as a part of the Foreign Trade Policy (FTP) 2015-20. The main purpose of this introduction was to boost exports in India by sending out incentives as a part of the duty credit scrips. 

These credit scrips were often seen as a subsidy which can further be used for paying custom duties. It was also open to be sold in the open market. Not only did this help in offering liquidity but also a wide range of other cost advantages. 

MEIS was aimed at covering a wide range of destinations and products thereby reducing the risk of cultural inefficiency. The value of the incentive however ranged between 5-8% on the value of exports depending on the products and country where it is to be exported. 

Why was MEIS phased out?

While MEIS is beneficial, it did have some drawbacks, which is one of the main reasons why it was phased out. A major reason for MEIS being removed was the violation of WTO (World Trade Center) rules. The incentives linked to product performance are seen as a violation especially when it crosses a specific threshold. This happened in 2015 eventually leading to MEIS being banned. 

A complaint was filed against the India trade program by the US in 2015 at WTO for violation of rules. A major problem was MEIS lacking information in providing complete information regarding incentives and tax rates. WTO had ruled out the case in favour of the US stating that the rules do not comply with the international trade rules regulations. 

In order to address the tax compliance, a more friendly plan was set out especially in regards to customs duty exemptions and GST. As a result, to address the discrepancies, RoDTEP was laid out to ensure proper legal compliance. 

Introduction to RoDTEP – what it is and how it works

The Remission of Duties Taxes on Exported Products (RoDTEP) was introduced in 2021. It replaced MEIS ensuring better compliance with the WTO regulations because it does not incentivize the export duty directly. The embedded duties that are not refunded by any other machinery will be refunded by RoDTEP. 

RoDTEP plays an important role in ensuring that the costs are reimbursed to the exporters as duty credit scripts. The scripts however have to be integrated with the Indian Customs system. These credits can further be used for paying import duties or also be sold in the market. 

The Central Board of Indirect Taxes and Customs (CBIC) managed RoDTEP. 

Major differences between MEIS and RoDTEP

The notable differences between MEIS and RoDTEP are as follows:

• MEIS was not compliant to WTO rules, whereas RoDTEP is. 
• MEIS offered duty credit scripts as ledger whereas RoDTEP offers digital credit ledgers. 
• MEIS has a rate of 5-8% variability, whereas for RoDTEP rate variability is not fixed and may vary significantly. 
• MEIS doesn’t have enough transparency but RoDTEP offers complete scalability through transparency. 

How exporters can benefit under RoDTEP

Some of the key ways through which exporters can easily benefits from RoDTEP are as follows:

• Since the rules are WTO compliant, there’s no risk of internal discrepancies or conflicts. 
• Providing broader coverage, it allows businesses to be competitive globally. 
• The credits are transferable which can further be used for paying the amounts. 
• Exporters dealing with high embedded costs can eventually benefit through the new scheme. 

Any challenges or paperwork involved in RoDTEP

Businesses starting with RoDTEP will however face numerous challenges, such as the following

• The documentation process is extremely complicated but retroactive claims are not accepted. 
• The rates are determined based on the products. Therefore, there are chances that in the long run the price range may fluctuate. 
• Imports with advance authorisation will not be eligible for getting the claim on exemptions. 

Tips for businesses to adapt to the new system

Businesses will gradually have to adopt the new system to ensure compliance and growth in the long run. Here are some tips that may be helpful

• Update the documents in regards to the RoDTEP policy with declaration in the shipping bill. 
• Integrate advanced digital tools in your business to drive profits and keep a record of all information. 
• Export and finance teams must be trained about the new policy and work towards how to use it. 
• It is advisable to connect with the trade experts to understand the policy better and resolve any scheme related queries. 

Conclusion

The shift from MEIS to RoDTEP is a significant movement for businesses. In the long term it builds sustainability and reliability. Furthermore, it also helps with ensuring better cost recovery especially for business growth. It can also play an important role in overcoming any compliance issues ensuring proper legal rules follow up. Therefore, exporters can strategically adapt to the policy to gain competitive edge in global markets.