India’s Export Duties to Come Under Increased Scrutiny

By Samuel Wrest

On February 28, India’s budget for 2015-16 will be presented by Finance Minister Arun Jaitley.  A key segment of government planning is expected to focus on India’s current export duties.

In recent years, India has deregulated its export procedures and made the export process far easier for companies to do business. As a result, export duties are lower now than in the past and are, in many instances, entirely avoidable for exporters. According to the World Bank, taxes on exports in India were just 0.02 percent of tax revenue when last measured in 2011.

That being said, India still has high export duties on numerous items, with several likely to be addressed during the upcoming budget session. While business may become easier for companies in certain industries, foreign firms will need to re-appraise associated registration, tax schemes, and other legal requirements involved in the export process.

Duty on Mineral Exports

Iron Ore

India’s tax on iron ore exports is one of its most controversial: the country currently levies a heavy 30 percent duty on the mineral. The rate has been having an especially adverse effect on exporters. An estimated 12 million tons of low-grade iron ore has been sitting at various Indian ports for several months, with buyers unwilling to pay the high export duties.

Once the world’s third largest exporter of iron ore, India’s output of the mineral has been in drastic decline since 2010, when the government increased export duties and began targeting illegal mining operations. Supply to China, India’s largest export market for iron ore, fell to US$61.30 a ton this week – the lowest amount since May 2009. Consequently, local experts expect the duty on iron ore exports to be revised or possibly scrapped at the upcoming budget session.

Bauxite

The export duty on bauxite was raised from 10 percent to 20 percent in 2014. The hike had a big impact on neighboring China, who in 2013 bought up 90 percent of India’s exports of the mineral.

The rise in bauxite’s export duty was intended to boost domestic availability and consumption of the mineral. However, according to a research report published by Citigroup, supply of bauxite will not be sufficient to satisfy global demand this year. As one of the world’s top producers of bauxite, India’s export duty on the mineral will be particularly important for countries heavily reliant on it, such as China.

India’s Current Customs Duty Law

Exporters should be fully versed in India’s export duty law, which is contained in the Customs Tariff Act and is governed by the Central Board of Excise and Customs (CBEC). Exports fall under Schedule 2 of the Act, and the Indian government has full discretionary power to either reduce or abolish existing export duties during its annual budget sessions.

 RELATED: Tax and Compliance Services from Dezan Shira & Associates

Under current regulations, most goods can be organized for export by simply paying its export duty, where applicable, and without obtaining a license. It is only if items are listed in Schedule 2 of the Indian Trade Classification (ITC) Harmonized System (HS) that a company will either need to obtain the relevant license, or be unable to export the product at all.

Products listed in Schedule 2 of the ITC (HS) will either be restricted or prohibited. Restricted goods become available for export once a company has obtained the appropriate license, which are granted by the DGFT on a case-by-case basis. Prohibited goods are ones that cannot be exported at all.

Commonly restricted and prohibited goods include:

First-time Exporters: Registering with the DGFT

The Directorate General of Foreign Trade (DGFT) operates as an arm of the Ministry of Commerce and Industry’s Department of Commerce and is the agency responsible for virtually all matters related to India’s export policies. All first-time exporters must register with the DGFT and acquire an Importer Exporter (IE) code number. This 10 digit code is necessary for businesses wishing to either export from or import to India.

To apply for an IE code number, the “Aayaat Niryaat Form” (ANF2A) must be submitted to the nearest regional authority of the DGFT either online, via post or in person. Along with the form, the following items must also be submitted:

• Two passport-sized photographs of the legally responsible person;
• Permanent account number (PAN);
• Current bank account number; and
• Banker’s Certificate.

Establishing Your Sourcing Platform in India
In this issue of India Briefing, we highlight the advantages India possesses as a sourcing option and explore the choices available to foreign companies seeking to create a sourcing presence here. In addition, we examine the relevant procurement, procedural and tax duty concerns involved in sourcing from India, and conclude by investigating the importance of supplier due diligence – a process that, if not conducted correctly, can often prove the undoing of a sourcing venture.

Taking Advantage of India’s FDI Reforms
In this edition of India Briefing Magazine, we explore important amendments to India’s foreign investment policy and outline various options for business establishment, including the creation of wholly owned subsidiaries in sectors that permit 100 percent foreign direct investment. We additionally explore several taxes that apply to wholly owned subsidiary companies, and provide an outlook for what investors can expect to see in India this year.

Passage to India: Selling to India’s Consumer Market
In this issue of India Briefing Magazine, we outline the fundamentals of India’s import policies and procedures, as well as provide an introduction to the essentials of engaging in direct and indirect export, acquiring an Indian company, selling to the government and establishing a local presence in the form of a liaison office, branch office, or wholly owned subsidiary. We conclude by taking a closer look at the strategic potential of joint ventures.

• Previous Article Eine Einführung in Indiens Buchprüfung für Laien
• Next Article Navigating India’s Goods & Services Tax