Finance Ministry advisors have called for reforms in the tax structure for services like shipping, aviation and telecom to make them competitive, as well as put the economy on a higher growth path.
A working paper authored by Finance Ministry Senior Economic Advisor H A C Prasad and Additional Economic Advisor R Sathish asked for rationalising the tax structure in the shipping industry, which pays 12 direct and indirect taxes currently.
Taxes like corporate tax, minimum alternate tax, dividend distribution tax, withholding tax on interest paid to foreign lenders, wealth tax, VAT, lease tax and service tax raise the effective tax rate of around two per cent under the tonnage regime to around nine per cent, said the paper, titled Policy for India's Services Sector.
As per the tonnage tax system imposed on shipping a few years back, levies were to be based on assets rather than on revenue.
The paper clarified that these are the views of the authors and not the Finance Ministry.
The paper called for service tax exemption on import of services like brokerage, commission, general insurance, ship management services and supply agency services to put the Indian shipping industry on a level playing field with foreign ship owners, who can obtain these services from foreign suppliers with no service tax payment.
The paper recommended exempting capital goods required for construction of ships from excise duty, on par with ship repair. Currently, the duty is levied at 16 per cent.
"In any yard having both shipbuilding and ship repair facilities, most of the assets are common. Hence, the concessions extended to one activity alone may not serve the required purpose," Prasad said, when contacted.
In the aviation maintenance sector, the paper asked for providing tax parity between imports of parts by service centres and aircraft operators to make the setting up of service centres a viable option.
In the aviation sector, the paper said when a service centre imports aircraft parts into India, it is required to first pay an import duty of around 20-25 per cent and when it sells these parts to an aircraft operator, a sales tax/VAT of around 10-13 per cent is to be paid.
However, if an aircraft operator directly imports aircraft parts, no sales tax/VAT is incurred and import duty is payable only when the parts imported are meant for a private category aircraft.
The paper said the telecom sector faces the issue of multiple levies like license fee, service tax, spectrum charges and access deficit charges paid to state-run BSNL.
These levies should be reduced to one or two to make the sector competitive, Prasad said.
Furthermore, the license fees of the telecom sector varied across states as well as the services offered, said the paper.
It suggested that total revenue of the telecom department should be divided by the total license fee the government is getting out of it to arrive at a uniform fee.
The advisors also wondered why the license fee also covered revenue from sale of handsets, which is not services.
Prasad also raised the issue of non-utilisation of the Rs 12,000 crore Universal Service Obligation (USO) Fund and suggested using the amount for constructing towers across 6 lakh villages, providing each village with fibre connectivity and providing power at the right rates by subidising it.
The USO fund was set up to fund rural telephony, but the amount collected remains unutilised.
Services together account for over 55 per cent of the Indian economy's GDP and can play even larger role if they expand faster. GDP is the value of final goods and services produced in a country in a year.
