 "Some suggestions regarding SEIS")
The Services Exports from India Scheme (SEIS) was launched last year. It gives duty credit scrips of three or five per cent of net foreign exchange earnings through export of select services, notified at Appendix 3D of the Handbook of Procedures, Vol 1. Some issues relating to this scheme need addressing.
The said Appendix 3D gives the entitlement rates, description of services and CPC code against each service. These Codes are aligned to the Services Sectoral Classification List prescribed by the World Trade Organization, which in turn is aligned to the Provisional Central Product Classification (CPC) code, developed by the United Nations Statistical Division in 1991. Subsequently, several new versions were released. The current version, 2.1, is structured in greater detail. The Directorate General of Foreign Trade (DGFT) should consider adopting the latest version, so that exporters of services can classify heir services more precisely. Ambiguity and scope for disputes could be thereby reduced.
The scheme provides for calculation of export incentive on the basis of "gross earnings of foreign exchange minus total expenses/payment or remittances of forex by the Importer/Exporter Code holder, relating to service sector in the financial year". For exporters of services that earn SEIS, as well as other services, this provision might entail exclusion of forex expenditure that might not have any nexus with the service income on which SEIS is being claimed. A logical view is that only foreign expenditure which is proportionate to the service income on which SEIS is being claimed should be excluded. Also, the forex expenditure on capital goods should be considered on an amortised basis, in the same manner that net forex earnings are calculated for export-oriented units. Another option could be to grant rewards on the basis of gross forex earnings, if necessary at reduced rates, the way duty credits are granted under the Merchandise Exports from India Scheme. That would simplify SEIS and save a lot of unproductive work.
The Foreign Trade Policy denies SEIS the benefits for supply of a 'service' from India through commercial presence in any other country (WTO Mode 3, Commercial Presence) and supply of a 'service' from India through the presence of natural persons in any other country (Mode 4, Presence of natural persons). However, the application form for SEIS includes these modes of delivery of services. The scheme grants benefits on the basis of net forex earned during a financial year but elsewhere the reference is to export of services made during a period. Whether export of services refers to the invoice date or the date services are rendered or forex realised is not clear. These confusions must be removed.
The DGFT has notified a list of services where SEIS benefits would be available even if payment is received in rupees. The list covers only the services relating to maritime transport. There is no reason to exclude some other services like air transport. Finally, the DGFT Public Notices restrict SEIS benefits to export of services made between April 1, 2015, and March 31, 2016. A decision on whether to continue the scheme beyond the latter date should be taken quickly and conveyed. Hopefully, the DGFT will take note of these suggestions and act without delay.
The said Appendix 3D gives the entitlement rates, description of services and CPC code against each service. These Codes are aligned to the Services Sectoral Classification List prescribed by the World Trade Organization, which in turn is aligned to the Provisional Central Product Classification (CPC) code, developed by the United Nations Statistical Division in 1991. Subsequently, several new versions were released. The current version, 2.1, is structured in greater detail. The Directorate General of Foreign Trade (DGFT) should consider adopting the latest version, so that exporters of services can classify heir services more precisely. Ambiguity and scope for disputes could be thereby reduced.
The scheme provides for calculation of export incentive on the basis of "gross earnings of foreign exchange minus total expenses/payment or remittances of forex by the Importer/Exporter Code holder, relating to service sector in the financial year". For exporters of services that earn SEIS, as well as other services, this provision might entail exclusion of forex expenditure that might not have any nexus with the service income on which SEIS is being claimed. A logical view is that only foreign expenditure which is proportionate to the service income on which SEIS is being claimed should be excluded. Also, the forex expenditure on capital goods should be considered on an amortised basis, in the same manner that net forex earnings are calculated for export-oriented units. Another option could be to grant rewards on the basis of gross forex earnings, if necessary at reduced rates, the way duty credits are granted under the Merchandise Exports from India Scheme. That would simplify SEIS and save a lot of unproductive work.
The Foreign Trade Policy denies SEIS the benefits for supply of a 'service' from India through commercial presence in any other country (WTO Mode 3, Commercial Presence) and supply of a 'service' from India through the presence of natural persons in any other country (Mode 4, Presence of natural persons). However, the application form for SEIS includes these modes of delivery of services. The scheme grants benefits on the basis of net forex earned during a financial year but elsewhere the reference is to export of services made during a period. Whether export of services refers to the invoice date or the date services are rendered or forex realised is not clear. These confusions must be removed.
The DGFT has notified a list of services where SEIS benefits would be available even if payment is received in rupees. The list covers only the services relating to maritime transport. There is no reason to exclude some other services like air transport. Finally, the DGFT Public Notices restrict SEIS benefits to export of services made between April 1, 2015, and March 31, 2016. A decision on whether to continue the scheme beyond the latter date should be taken quickly and conveyed. Hopefully, the DGFT will take note of these suggestions and act without delay.
E-mail: tncrajagopalan@gmail.com