The Export Promotion Capital Goods (EPCG) Scheme is an initiative of the Indian government’s Department of Commerce facilitating the import of capital goods to produce goods and services that will enhance India’s export competitiveness.
It allows the duty-free import of capital goods and raw materials for producing export goods. This comes with certain export obligations that the importer must meet.
As CFO or finance head of an importing company, here’s everything you must know about EPCG export obligations.
Export obligations under the EPCG scheme
Here are the various EPCG export obligations (EO) finance heads must stay on top of, if availing duty exemption under the scheme:
- Export value: Companies must achieve an export value of at least six times the duty saved. This has to be completed within 6 years of the date of authorization. This is probably the biggest number your finance team must track
- Product specificity: The exported products must be manufactured using the imported capital goods. Also, they must fall within the same product category as specified in the EPCG authorization
- Proper utilization of imported goods: The capital goods and raw materials imported under the EPCG scheme must only be used for manufacturing export goods
- Timeframe: Not fulfilling export obligations within the specified time can make your organization liable to considerable penalties. Two things for CFOs to remember here:
- Specific Export Obligation (SEO): With the 6-year timeframe in mind, you must fulfill at least 50% in the first four years, and the remainder over the last two
- Average Export Obligation (AEO): Besides fulfilling the SEO requirements, you must also maintain an average export value based on your exports for the three years preceding the authorization. This is usually assessed annually, and non-fulfillment leads to penalties
- Reporting: Your team must maintain detailed records and submit an annual export compliance report to the DGFT (Directorate General of Foreign Trade) each year. This report should include relevant shipping bills, GST invoices, product details, and so on
The financial impact of non-compliance
Failure to meet the export obligations under EPCG directly impacts your bottom line, with penalties as high as the total duty saved (plus 15% interest) and potential fines.
You can request the DGFT RA to grant you a one-year extension, twice. However, there’s a composition cost—5% and 10% of the proportionate duty saved, respectively.
Non-compliance with export obligations can also seriously affect your cash flow, impact your tax benefits, and hinder your participation in other schemes.
4 strategies for finance teams to stay ahead
Effectively managing export obligations under the EPCG scheme is crucial to ensure compliance and maximize benefits. Here are strategies for finance leaders to achieve this:
1. Proper compliance framework
Assign specific roles and responsibilities within your team to oversee compliance activities. With them, build a compliance framework that covers all the requirements under the EPCG scheme, such as timelines and reporting requirements.
2. Regular monitoring
Establish key performance indicators (KPIs) related to export obligations and monitor them regularly. This way you can proactively track adherence to EPCG export obligations.
You may measure KPIs such as:
- Export value achieved from products manufactured using the capital goods imported
- Fulfillment rate of export obligations within a timeframe
- Timeliness of document submission to regulatory authorities
- Penalties or fines incurred due to non-compliance with EPCG obligations
Trezix Tip: Smart, customizable dashboards in Trezix help you monitor chosen metrics closely
3. Efficient documentation management
Maintain detailed records of all transactions related to the EPCG scheme, including import documentation, export invoices, and shipping documents.
Regularly review processes to ensure records are accurate and audit-ready. Use digital tools or software to efficiently track and manage Exim documentation.
Trezix Tip: Trezix consolidates all necessary documentation related to the EPCG scheme, including licenses and approvals.
4. Proactive risk management
Identify and track potential risks associated with international trade, such as currency fluctuations, market closures, and changes in trade policies.
Develop risk mitigation strategies, including hedging options or diversifying markets to minimize exposure.
Manage your EPCG export obligations efficiently with Trezix
In the midst of everything your finance team has to manage, tracking EPCG export obligations can be tricky.
Trezix is the solution you need to make this process simple and effective. Our SaaS platform’s focus on documentation management, real-time tracking, and predictive analytics empowers organizations to navigate the complexities of international trade more efficiently.
Learn more by speaking with our experts today.
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