Continuation of EPCG Plan is Still Being Evaluated

Export Promotion Capital Goods (EPCG), a key export initiative created in the 1990s that permits exporters to import certain capital goods used in manufacturing without paying duty, is being reviewed by the government.

The trade department is looking into whether the plan that was found to be in violation of WTO standards is still essential or may be phased out.

“There is a feeling among some parts of the administration that the EPCG plan isn’t helping the domestic capital goods industry expand and should be phased out,” said a government official who did not want to be identified.

EPCG is not off the table, according to Commerce Secretary BVR Subrahmanyam, although specific plans are being scrutinised.

The revenue department, according to persons acquainted with the situation, is in favour of gradually phaseing out the scheme. The incentives provided to the power sector under the scheme were eliminated almost ten years ago.

On the matter, the commerce and industry ministry has had one round of discussions with industry.

Capital items for pre-production, production, and post-production are eligible to be imported duty-free under the plan. However, this is contingent on the fulfilment of a specified export obligation equal to six times the duty, taxes, and cess saved on capital goods, which must be completed within six years of the authorisation’s issuance.

Between 2015 and 2017, about 95,000 authorizations were issued.

Exporters have encouraged the government to keep the plan going since a six-year export obligation period helps firms stay afloat in difficult times.

“Many enterprises would have stopped exporting if EPCG had not imposed an export obligation,” claimed an industry representative who attended the stakeholder consultation late last month.

According to another trade representative, unlike EPCG, which creates committed exports, the finance ministry’s Manufacturing and Other Operations in Warehouse Regulations Scheme permits duty-free import of capital goods even for domestic production, and so the scheme should not be discontinued.