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More service tax sops for exporters
September, 20th 2007
There is more relief in store for harried exporters. The list of services on which exporters have been granted exemption from payment of service tax may be expanded. Commission paid to foreign agents which forms a sizeable chunk of the service tax paid by exporters in sectors such as pharmaceuticals and textiles could be one of the services added to the list.

The government is also examining the exporters demand to exempt service tax on movement of goods from factories to inland container depots (ICDs). The finance ministry announced service tax exemption only on transportation of goods from ICDs to ports.

It is, however, unlikely that the government would provide exemption (known as zero-rating) instead of refunds. Exporters had argued that service tax should be zero-rated as giving refunds would just add to the paperwork and result in delayed payments. Sources said the finance ministry is working on a mechanism to check misuse of the exemptions.

The finance ministry, on Tuesday, notified refund of service tax for exporters for transporting goods in ports and from ICDs to ports through rail and roads.

Government sources said the finance ministry was favourably considering inclusion of commission paid to foreign agents in the list of exempted services for exporters. Although it cant be said when it would happen, there is a fair chance that commission to foreign agents will be included in the exemption list, the source said.

According to Fieo director-general Ajay Sahai, the government should not exclude commission to foreign agents as it forms a sizeable component of service tax paid by exporters. In the pharmaceutical sector, foreign agents charge 15% commission while in the textiles sector, commission is as high as 10%. A 12.5% service tax on these services results in a burden of about 1.8% of the export value, Mr Sahai explained.

Officials from the commerce and industry minister pointed out that the government was also looking at the demand to exempt movement of goods from factories to ICDs.

Exporters have argued that giving exemptions only for transportation from ICDs to ports is unfair to land-locked states. Exporters in states such as Punjab and Jammu & Kashmir end up spending much more on transportation from factories to ICDs than from ICDs to ports. This demand is also being taken into account, the official said.
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