Tax incentives for exporters will be lowered from Oct 1 as the government said Friday it will do away with the popular tax refund scheme, Duty Entitlement Pass Book (DEPB), and bring them under an existing duty drawback scheme from the beginning of next month.

At the same time, the number of items eligible for the drawback scheme have been increased by 1,100 to take the number of eligible items to 4,000.

After unveiling a transitory scheme for the 14-year old DEPB scheme, Finance Secretary R.S. Gujral said tax refunds on exports of 2,130 items will be reduced by 1 to 3 percent.

"An endeavour has been made to soften the reduction and transition from the DEPB to duty drawback scheme," Gujral told reporters.

Exporters of engineering, chemical, pharmaceuticals, marine and textile products are the major beneficiaries of DEPB scheme. Tax refunds under DEPB scheme resulted in the revenue loss of Rs.8,700 crore to the government exchequer last fiscal.

The revenue loss would be reduced significantly due to the replacement of the DEPB scheme, said Chairman of Central Board of Excise and Customs S.D. Majumdar.

The reduction in tax incentives might affect the growth of exports.

India's exports jumped 54.2 percent at $134.5 billion in April-August period, led by a sharp increase in exports of engineering goods.

Officials said the government will shortly notify "all industry rates" of duty drawback for the current fiscal.

The government had constituted a committee in January under Planning Commission member Saumitra Chaudhuri for formulating the "all industry rates" duty drawback.

The committee recently submitted its report.

"Recommendations of the committee form the basis for the rates being notified," the finance ministry said in a statement.

"The DEPB Scheme has been in existence since 1997. Presently, there are 2,130 line items covered under this scheme. Incorporating these items within the drawback schedule and assigning appropriate duty drawback rates for these items was a challenge both from a product classification perspective as well as from a drawback rate perspective," an official statement said.

"Consequently, the new drawback schedule will incorporate an additional 1,100 line items(approx.) which are being taken from the DEPB list. With this, the total number of items in the drawback schedule will number approximately 4000 line items, as against the present 2835 line items," the statement added.

Most items which are already covered under the duty drawback scheme will suffer a minor reduction in the existing rates.

"The reduction is mainly on account of the reduction in basic customs duty on crude petroleum from 5 percent to nil as well as a reduction in central excise duty on diesel from Rs.4.40 per litre to Rs.2.40 per litre," a finance ministry statement said.  (Economic Times)