SEIS allocation will help tourism-related services

Giving a substantial part of the meagre allocation under SEIS to hotels, restaurants and other tourism-related service providers against their NFE earnings in 2019-20 will help them cope with distress

A few weeks back, the Finance Ministry gave concurrence to the proposal of the Commerce Ministry for continuation of Services Exports from India Scheme (SEIS) for 2019-20 with a financial allocation of Rs 2,061 crore, subject to the condition that the amount will be provided through expenditure budget following the procedure of providing a new minor head.
 
The SEIS was introduced in 2015, replacing the earlier Served from India Scheme (SFIS). The scheme started with duty credits at 3 per cent to 5 per cent of net foreign exchange (NFE) earnings through exports of specified services such as business services (including professional services, research and development services, management consulting services, technical and testing services etc.), communication services, tourism and travel-related services, construction and related engineering services, education services, environmental services, health-related and social services and so on.

 
In December 2017, the rates were raised by 2% across the board for all the notified services without any justification. The duty credits are transferable and can be utilized for payment of basic customs duty on imported items.
 

Unlike the earlier SFIS where ‘Indian service providers’ were eligible for the benefits, the SEIS allowed ‘Service Providers located in India’ to claim the duty credit scrips. That enabled some multinational consultancy firms providing services such as taxation, accounting, auditing, engineering, etc., collect hefty rewards at 7 per cent of NFE earnings under SEIS.
 
The Regional Offices of the Directorate General of Foreign Trade issued 1,368 duty scrips in 2016-17 for NFE earnings from export of services in the previous year, followed by 5,569, 6,376 and 8,280 duty credit scrips in the next three years, respectively.

 
The value of the scrips issued in 2016-17 was Rs 561 crore followed by Rs 3475 crore, Rs 4,263 crore and Rs 7,114 crores in the next three years. The Commerce Ministry used to notify the rates of duty credits under SEIS for each year.
 
However, no rates were notified for the NFE earnings during 2019-20 and 2020-21.  Now that the Finance Ministry has made the allocations of only Rs 2,061 crores, the Commerce Ministry has to decide which of the services will be eligible for the SEIS benefits and at what rates for NFE earnings in 2019-20. The allocation is only 28.97 per cent of the duty credits gran­ted during the year 2019-20 for the NFE earnings during the previous years. 

 
The SEIS benefits are available only to cross-border delivery of services from India to any other country and supply of services in India to service consumers of any other country. They are not available for supply of services through commercial presence in any other country.
 
During the pandemic, cross-border or domestic delivery of services through telecommunication networks did not suffer much. However, international travel decreased substantially and even the most domestic travellers preferred to stay home. Therefore, giving a substantial part of the meagre allocation under the SEIS to hotels, restaurants and other tourism-related service providers against their NFE earnings in 2019-20 will help them cope with the distress.

 
Even for the subsequent years, the focus should be on rewarding their NFE earnings. Any incentives for export of other services should not be given without proper evaluation of the merits.

email:tncrajagopalan@gmail.com