The government today came out with modified duty drawback rates for exporters, evoking the sharp reaction from the apparel industry which will witness the reduction in tax refunds. The new All Industry Rates of Duty drawback, the refund of duties on imported inputs for export items, will come into effect from October 1.

The new refund rates for garments will come down to 2 per cent as compared to the 7.7 per cent drawback available till now, said Apparel Export Promotion Council (AEPC) in a statement. "This low rate is unexpected as this body blow is coming at a time when the industry is facing the continuous decline in exports due to global conditions, rupee over-valuation and uncertainties post the GST regime," the garments exporters' body said.

AEPC chairman Ashok G Rajani said the drawback was one of the key policy support measures towards lifting industry's cost competitiveness in the wake of above slew of factors adversely affecting the sector.

With this steep decline in the drawback support, over 7,000 small and medium enterprises in the apparel exports will be crippled and doomed in uncertainties, he said. The drawback rates for a host of items, including toys, furniture, musical instruments, aircraft, and vehicles, effective October 1 has been notified by the revenue department.

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