Existing mechanism of refund of input-stage VAT is fraught with delays
Disappointment VAT provision that prohibits refund of input-stage VAT in cases where the final product is exported from a State different from the one in which VAT is paid. Units in domestic tariff area that export more than 75 per cent of the production are not given any tax incentives for their foreign exchange earnings.
The exporting community has stepped up a demand for exempting them from value-added tax (VAT), stating that the existing mechanism of refund of input-stage VAT was fraught with delays.
"Refund of VAT for the exporters has worked successfully only in those countries where there is complete electronic data interchange (EDI) connectivity and the VAT reimbursing authorities access online the details of input stage VAT paid by the exporters", the Federation of Indian Export Organisation (FIEO) said in its pre-budget memorandum to the Government.
The FIEO has suggested that the Government should extend the exemption route only to the exporters till the stage of complete EDI connectivity is ensured.
It has also been highlighted that blockage of funds, due to delay in refund of input-stage VAT, erodes competitiveness of Indian export products.
Moreover, the FIEO has also expressed disappointment over the VAT provision that prohibits refund of input-stage VAT in cases where the final product is exported from a State different from the one in which VAT was paid. The pre-budget memorandum highlights that exports involve multi-point production, processing, finishing and packaging and sometimes these are done in more than one State.
On direct tax
On the direct tax front, the FIEO has suggested that units in the domestic tariff area (DTA) should get 100 per cent tax exemption on export profitsand this could be achieved by extending Section 10A and Section 10B of the Income-Tax Act to all exporting units.
Currently, units in the domestic tariff area that export more than 75 per cent of the production are not given any tax incentives for their foreign exchange earnings, while units in the SEZs and 100 per cent EoUs are provided tax relief under Section 10A and 10 B of the Act respectively.