SEZs may get more service tax respite

Special economic zones (SEZs) are likely to get new concessions related to service tax exemption on more activities.

Sources said the commerce department was discussing the proposal with its revenue counterpart. The benefits, if firmed up, will be enjoyed by developers and units in SEZs.

The SEZ rules allow service tax exemption only on a limited set of "authorised operations", which are activities carried out inside the zone and approved by the inter-ministerial Board of Approval (BoA) for SEZs.

As a result, SEZ developers and units engaged in exports do not get service tax concession on a host of other activities.

"SEZ units and developers have to subscribe to many export-related services outside the zones, which are very much a part of authorised operations. Service tax on such services adds significantly to our costs," said T Vasu, chairman of the Export Promotion Council for EoUs and SEZ Units.

For example, an exporter outside a zone is eligible for service tax exemption on port services, but his counterpart in an SEZ is not. Significantly, the annual supplement to the foreign trade policy, released in April this year, provides for service tax exemption to SEZ units.

The commerce department is of the view that SEZ developers and units are getting far less service tax concessions than exporters who are out of these zones.

Analysts point out that exporters outside SEZs enjoy Cenvat credit against service tax paid on a host of services subscribed to while engaging in export-related activities. In addition, the department of revenue recently permitted service tax exemption on seven services used by exporters.

According to sources, the commerce department has shown its revenue counterpart the links that various input, pre-shipment, post-shipment, export promotion, banking and legal services have with the "authorised operations".

The commerce department hopes this will help the revenue department expedite the process of granting service tax exemption.

The commerce department has also proposed a procedure for giving the exemptions.