Service tax sops to boost exports

In a letter in 1789, Jefferson is said to have remarked "The execution of the laws is more important than the making of them".

This quote seems relevant if one looks at the laws framed under the service tax and particularly, the rules for recognition of export of services.

Export of services was never taxed in the first place. This is because historically, our country has had a standard clause to exempt export services from the clutches of all laws""receipts for the exports should be in convertible foreign exchange and should be received within a reasonable time.

During the hey days of the Foreign Exchange Regulation Act, 1973, approvals from the Reserve Bank of India were also mentioned as one of the pre-conditions.

Even if the foreign exchange was not received within a reasonable time ""six months was the benchmark""an escape clause was provided by which one could approach the RBI for an extension of time.

The customer-friendly RBI would invariably give it, save in a few instances. The same rules applied for export of services too under the service tax law when they were framed.

The new rules for export of services has identified three sine-qua-nons for recognition of export of services: property outside India; rendering of services outside India; and recipient of services is outside India.

Having identified these essentials, the rules go on to allocate these pre-conditions among the 71 taxable services. Consequent to this, the department has issued a notification exempting export of services by providers of airport services from the levy of the service tax.

For service providers connected with the real-estate industry such as architects, interior decorators and units engaged in construction service, the condition is that the property must be outside India.

For service providers like stockbrokers, chartered accountants and other professionals and air travel agents the condition is that services are to be provided outside India.

By allocating these conditions to all taxable services, the CBEC seems to be imagining some rare scenarios""would one expect an Indian drycleaner or pandal or shamiana contractor to have a business in London or New York? In the same vein, one can ask would the Cochin Port Trust or Southern Roadways open another port/office in Singapore?

If a chartered accountant sitting in his office at Nariman Point gives his opinion on transfer pricing to a client in Muscat by email, it would not be regarded as export of services. But if he goes to Muscat to render the same service, it is 10.2 per cent cheaper.

For consulting engineers, management consultants and fashion designer it is suffice if the recipient of services is outside India. Taking the same example, if the management consultant gives his opinion on transfer pricing to a client, it is recognised as export of services and is exempt from the service tax.

Thus the same service provided by two different professionals gives rise to two methods of taxation. Similarly, if a consulting engineer gives an opinion about a building in India to a client residing abroad, it is exempt from the service tax since the recipient is residing abroad.

But if an interior decorator gives his opinion on the same property sitting in India, it is not exempt since the property is in India. Such distinctions within services do not appear to serve the intent behind making these laws.

The lawmakers have visualised export prospects for all categories of taxable services. The intent behind providing tax sops for exports could be two-fold""encourage entrepreneurs to explore global markets and earn foreign exchange for the country.

The tax sops should keep these two factors in mind instead of focusing on the logistics and place of providing these services. Law makers of the service tax would do well to remember Jeffersons quote before they issue their next series of notifications.