Nath waives tax on export-linked services

Expects rupee to weaken; wants more credit for SMEs.

The commerce ministry today announced that all services rendered abroad or those delivered to exporters in India will henceforth be exempt from 12.24 per cent service tax.

Besides this sop, a part of the third annual supplement of the foreign trade policy 2004-09, Commerce Minister Kamal Nath extended duty benefit schemes for exports to Special Economic Zones, while balancing this with more incentives for agricultural exports.

Nath also unveiled an expanded "focus products and focus markets" scheme, extended the duty entitlement passbook scheme (DEPB) by a year to March 31, 2008, launched a new export promotion scheme for high-tech products, and eased export obligations under the export promotion capital goods (EPCG) scheme. A significant streamlining and simplification of procedures to cut transaction costs was also announced.

The sops and new initiatives prompted Nath to revise upwards the export target for 2007-08 to $160 billion, $10 billion more than the original forecast for the year. For 2008-09, the target has been set at an even more ambitious $200 billion. The new targets follow India making exports worth $125 billion in 2006-07.

The service tax exemption and remission for exports will benefit a number of sectors, including textiles, pharmaceuticals, hospitality companies, as well as the booming business process outsourcing segment.

In raising the export target for the current year, Nath is banking heavily on a moderation in the recent appreciation of the rupee. The Indian currency has surged almost 11 per cent from a three-year low reached on July 19. It fell as much as 0.4 per cent to 42.18 against the dollar earlier during the day.

Nath said the ministry had taken into account all possible fluctuations of the rupee while setting the revised export targets. "I think there is going to be a reduction now. The rupee will marginally depreciate in the future."

The commerce ministry is also moving to help exporters tackle the adverse effects of the strengthening rupee. Nath said the government was talking to the Reserve Bank for giving concessional credit to small and medium exporters.

Commerce Secretary G K Pillai said commercial banks, which at present earmark 15 per cent of their lending for exporters, were being requested to lend at least half of this to small and medium enterprises.

Nath is also meeting exporters next week to discuss further steps.

The service tax exemption will be available on all services rendered abroad and charged on exports from India. Similarly, the service tax paid 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 the revenue department," Nath added.

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FILLIP TO TRADE

Service tax benefits given to exporters

Export duty benefit schemes extended to SEZs

Focus Products, Focus Markets schemes expanded

DEPB scheme extended to 31 March 2008

New export promotion scheme launched for high-tech products

Export obligations under EPCG scheme eased