Govt notifies service tax sops for exporters

The measure fails to meet the FIEO demand for exempting all services used in exported goods and services.

The finance ministry today notified the service tax refund scheme for exporters using port, rail and road transport services.

The notification, which comes six months after the announcement by Commerce Minister Kamal Nath, is expected to help exporters offset a part of the losses due to the recent appreciation of the rupee.

"The government has decided to refund the service tax paid by exporters on four taxable services, which are not in the nature of input services, but could be linked to export goods," said a finance ministry statement.

The scheme provides for refund of the tax paid on port services, other port services like technical inspection and analysis services, and rail and road transport services.

The measure, however, fails to meet the demand of the Federation of Indian Export Organisations (FIEO) for service tax exemption on all services used in exported goods and services. The FIEO termed today's measure as half-hearted.

"We are partly happy. We will again approach the government to demand service tax exemption on all services used by exporters, like participating in trade fairs abroad, foreign traveling expenses, bank charges, and designing products for exports," said FIEO Chairman GK Gupta.

Gupta said they were disappointed that exporters would have to first pay the tax on the above services and claim a refund later. "This will increase the transaction cost and time," he added.

The notification does not include the exporters of services. "Service tax exemption should have been extended to input services used by service exporters also," said Anita Rastogi, principal consultant, PricewaterhouseCoopers.

Refunds can be recovered by the government from exporters if they do not receive payment for the goods exported in time.

The finance ministry had in July provided a financial package of Rs 1,400 crore to exporters. The package included 2 per cent interest subvention on bank credit availed by them.

Exporters already get a refund of the service tax paid on input services. The drawback scheme also factors in the service tax paid on input services used for exporting goods.

The refund of service tax is part of the government's sops to exporters, who have been hit by the appreciation of the rupee against the US dollar.

The Indian currency has appreciated nearly 8.5 per cent against the greenback since January, primarily on the back of strong capital flows. India is targeting a 28 per cent growth in exports to $160 billion in the current financial year, but the government plans to review this target in November due to the rise in the value of the rupee.

In April-July, exports grew 18.2 per cent to $46.798 billion. This is slower than the target of 28 per cent for the year.