Much-needed edge for manufacturers

2007 Supplement to Foreign Trade Policy 2004-09

Service tax curb to make India more competitive.

Removal of service tax on exports, which is likely to be notified shortly, will marginally benefit Indian manufacturers.

While reacting to the unveiling of the Annual Supplement to Foreign Trade Policy 2004-09 by Commerce and Industry Minister Kamal Nath, former Director General of Foreign Trade N L Lakhanpal said, "Indian exports were uncompeitive as there was no tax on exports from other manufacturing countries. Removal of service tax by India will make it a little more competitive."

However, there will not be much impact on revenue front as all indirect taxes exported are supposed to be neutralised. "India was dragging its feet, the removal of service tax is a welcome step," Lakhanpal said.

In the third supplement to the Foreign Trade Policy 2004-09, commerce minister Kamal Nath announced removal of service tax on export of goods and services.

With a view to facilitating the export of services from India, all the services rendered abroad and charged on exports from India would be exempted from payment of service tax.

Similarly, service tax on services rendered in India, but utilised by exporters would be exempted or remitted.

A remission mechanism, where exemption is not available, is being put in place in consultation with Department of Revenue."Traders participating in fairs, exhibitions and commodity exporters are likely to benefit from service tax exemption," said Arun Goyal, trade analyst.

Goyal said there will be not much impact the service tax collection as the tax is growing at a very fast pace and exporters were getting refund to some extent in the present environment.

Service tax was being levied at the rate of 12.24 per cent plus education cess of three per cent.

Industry chamber FICCI expressed satisfaction that the proposed exemption from service tax on export of services and goods would meet the long-standing legitimate demand of Indian business.

"This step would ensure that service taxes are not exported and to that extent it would help in retaining our competitiveness", said FICCI president Habil Khorakiwala.

Service tax on a number of services like those rendered by custom house agents, quality testing and warehousing, were making India's exports uncompetitive vis-a-vis other countries, added Khorakiwala.

Industry body CII said this has been the persistent request of the exporters and the chamber is happy that the Minister has exempted the tax.

Welcoming exemption from service tax on services and exports of goods, industry body Assocham said it is a welcome step for which it was demanding for long.