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May get service tax relief
June, 16th 2009

Exporters may be spared from having to pay taxes on any services availed during the course of their business, and could just file a return as a proof, if the finance ministry accepts a proposal being readied by the commerce department for inclusion in the upcoming Budget.

The finance ministry, at present, allows exporters to claim refunds for some 20 services after taxes, fixed at 10% of the value of the service availed, have been paid, as it feels this is an easier way to monitor claims made by exporters.

The list of services availed by exporters includes banking and other financial services, port services, transport of goods by road and railways, general insurance, technical testing & analysis, storage & warehousing, business exhibition services and specialised cleaning services.

Commerce department officials said the view now emerging was that instead of refunding taxes paid on certain identified services, exporters should be given a blanket exemption and asked to file a return for the exemption availed.

Claiming a refund is a pain-staking process. Exporters keep complaining that their funds stay locked with the government at a time when there is a global credit crunch. So, we are pushing for service tax exemption, a commerce department official told ET.

The condition that the exporter should file a return for the exemption claimed will ensure that the benefit is not misused, added the official, who asked not to be named.

For instance, if an exporter uses a truck to transport goods for export from his factory to the port and does not pay service tax on it, he can get a receipt for it and attach it with his returns. Since the receipt will have the details, including the points of loading and unloading, he cant cheat, the official explained.

While the view of the finance ministry, which puts together the Budget, on this specific proposal is not yet known, the government has in the past promised all measures to help the export sector, among the worst hit by the steep slump in global trade. Indias merchandise exports fell 30% last month, the eight straight month of decline.

Trade minister Anand Sharma earlier this month promised measures in the July Budget and also in the foreign trade policy, to be announced in August, to help alleviate some of the pain being felt by the sector.

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