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Service tax exemptions may hit finmin roadblock
April, 24th 2007

Commerce and industry minister Kamal Nath's plans of providing service tax exemption to exports in the annual supplement to the Foreign Trade Policy may hit a roadblock. As reported by FE earlier, the finance ministry seems unwilling to give up over Rs 650 crore of revenue it expects to earn from taxing exports.

According to sources, the ministries are likely to hold further talks before taking a final decision. The decision to provide service tax exemption to exports was made without taking into account the revenue implications, sources added.

The commerce ministry has, however, ruled out any financial implications of exempting exports from service tax, referring to it as only a notional loss. There is no question of revenue losses from service tax exemption as it is not a payment but a refund procedure. All levies and taxes will be remitted to exporters, Nath had said. The commerce ministry has sent a list of export-related services, including use of overseas agents for getting export orders, haulage charges incurred overseas, printing brochures for global exhibitions and availing warehousing facilities abroad to the finance ministry.

One of the reasons for the commerce ministry setting a high export target of $160 billion is the expectation of a concession from the finance ministry on service tax.

Export Blues
Finance ministry unwilling to give up over Rs 650 cr earning, expected from taxing exports
Commerce ministry says, it is not a payment but a refund procedure
At present, exporters pay 12.36% service tax on all exports
At present, exporters pay 12.36% service tax on all exports. Present rules do not allow for any refund of services availed after the manufacturing of goods, and also for selling. Exporters have time and again complained of the burden of the tax, saying it hurts their businesses, since they cannot do without the agents who get them major foreign buyers.

The decision to exempt service tax on exports has been widely welcomed by exporters. The decision is considered to be one of the key features of the Foreign Trade Policy review. The move is meant to provide a boost to exporters. Abolition of service tax is also expected to help exporters tide over the rising rupee scenario.

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