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Government may widen SFIS scope to enable exporters trade tax incentives
October, 09th 2014

The government is likely to expand the scope of Served from India Scheme (SFIS) by allowing exporters to trade the tax incentives earned by them in a bid to spur services exports.

The incentives are in the form of duty credit scrips that can be used to pay the customs duty on input imports of capital goods or consumables.

If the incentives are made tradable, exporters from sectors such as education, healthcare, healthcare, consultancy and real estate that do not import much will be able to sell them in

"We are trying to broaden the scope of SFIS. The issue is that most sectors are not able to utilise the scheme as there are many conditions attached. Therefore they should be allowed to sell it in the market. It will be a great relief for the exporters," said a government official.

The five-year foreign trade policy is set to be announced in the next two weeks, with the government likely to set an export target of $650-700 billion by 2019.

At present, duty credit scrips equivalent to 10 per cent of free foreign exchange earned are issued on actual user basis. "Mainly hotels and tour operators take advantage of the scheme right now. But what about the rest? Efforts are on from our side to allow exporters to give it to someone else," said the official, who did not wish to be named. The government will also make SFIS scrips adjustable against 12 per cent service tax, besides increasing the overall amount of the scheme.

India's services exports stand at about $145 billion, half of the merchandise exports of over $300 billion. The revenue outgo under SFIS was Rs 1,000 crore in 2013-14. Once the scrips become tradeable, the outgo will expand tremendously.

To avoid that, the government will limit the scheme to a few sectors. "The move will give a leg up to the services exports. Since the scheme can only be used for capital goods imports and consumables, it has a very limited scope," said Ajay Sahai, director general and CEO of the Federation of Indian Export Organisations (FIEO).

The government may also prune the existing promotional schemes for merchandise exports like 'focus products' and 'focus market', while giving a big push to branding initiatives. "We will be targeting only specific markets, which will improve India's competitiveness where it is required, resulting in higher shipments," said the official.

The share of exports to focus market countries in total exports rose from 6.72 per cent in 2009-10 to 8.32 per cent in 2012-13, as per a study by FIEO. India's share in China's imports fell from 1.02 per cent to 0.74 per cent between 2005 and 2012. However, the country's share in top importing nations of $100 billion and above grew marginally from 1.33 per cent to 1.49 per cent between 2009-10 and 2012-13, according to FIEO.

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