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MUMBAI: Indian exporters have received notices from the customs department demanding payment of duty differentials on rice exported in the last 18 months, four exporters told Reuters, a rare tax demand that could cripple rice shipments from India.

The world’s biggest rice exporter imposed a 20% export duty on white rice in September 2022, followed by a similar duty on parboiled rice in August 2023 to control domestic rice prices ahead of key 2024 state and national elections.

Exporters were paying a 20% duty based on the Free on Board (FOB) value of rice. However, the customs department now requires them to consider the transaction value and pay any resulting duty difference.

“It is informed to pay the export duty along with applicable interest by exporters on the amounts received over and above the FOB value declared in the shipping bills,” the customs department informed exporters, in tax demand notices seen by Reuters.

Exporters don’t have the financial muscle to pay the duty difference for nearly two years; instead, they would close the business, said an exporter based in southern state of Andhra Pradesh.

“The government is now demanding additional duty, which no overseas buyer will pay to us. How could we then pay the additional duty to the government?” he asked.

The finance ministry and Central Board of Indirect Taxes and Customs did not reply to requests for comment.

According to the government’s new calculations, exporters would need to pay an additional duty of around $15 per metric ton on rice exported in the past two years, said a New-Delhi based dealer with a global trade house.

The industry estimates the total cost of this additional duty to be around 15 billion rupees, he said. The Rice Exporters Association plans to approach the government to convince them that the current duty demand is impractical and propose a flat duty on future exports to avoid similar confusion, said its president B.V. Krishna Rao.

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