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Govt to levy only 4% VAT
July, 22nd 2009

Keeping the current global scenario in mind, the Finance Ministers Budget proposals on indirect taxes focused primarily on providing a stable framework to the industry at large, with a specific emphasis on the export sector which has been greatly impacted in recent times due to the decrease in global demand.

Apart from providing certain specific reliefs to export oriented sectors like leather, textile and footwear, etc, one announcement that would have many hopes pinned on it is that of revamping the scheme of service tax refund for exporters.

The scheme of service tax refund for exporters was first introduced in September 2007 by the Government in keeping with the international practice of zero rating exports.

The Scheme allowed for the refund of service tax paid by merchant exporters with respect to thirteen services including port services, customs house agent services, insurance services, etc even where such services are not in the nature of input service but were relatable to the export of goods subject to certain prescribed conditions.

In the wake of economic recession, the Government had in the recent past expanded the scope of the scheme and introduced several procedural simplifications with a view of providing impetus to the slowing export industry.

In fact, the second stimulus package announced earlier this year had provided for the constitution of a Committee under the chairmanship of the Finance Secretary for the resolution of practical issues being faced by exporters on a fast-track basis.

Despite the various efforts of the Government to facilitate speedier service tax refunds, this has remained a sour point with the exporting community. The challenges faced by the exporters at the ground level were more on account of an inbuilt resistance to release refunds by the revenue authorities and not so much because of the non eligibility or illegitimacy of the claims.

In yet another attempt to rectify the situation and ensure speedier refunds, the Budget proposes to revamp the existing scheme. The modifications are two fold. Exporters have been exempted from payment of service tax on two services, namely, transport of goods by road and commission paid to foreign agents. Exporters were paying service tax on reverse charge basis on such services. Hence there were first paying the service tax and thereafter claiming refunds. This exemption does away with the circuitous route and would definitely improve the credit flow situation for exporters. It is however pertinent to note that the present cap of 10 per cent on commission agency charges has been retained.

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