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Govt likely to scrap 12% service tax on exporters
January, 22nd 2007

Budget 2007-08 is likely to bring some good news for exporters. For, the government is planning to scrap the 12.24% service tax imposed on them.

The tax was introduced to include exporters, availing services of foreign-based commission agents to win export orders, warehousing facilities abroad and haulage charges incurred overseas. With exports $125 billion and since the minimum commission charged by overseas agents is 1%, the taxable amount for this service tax is estimated at $1.2 billion.

With a 12% service tax on them, exporters cough up $144 million. Exporters find it diffucult to pay such a huge amount, as they need agents, without whom it will be tough for them to locate good buyers.

While exporters in most of the sectors pay a commission of 1%-5% of the freight-on-board value of exports, the pharmaceutical sector pays 15-20% of the FOB value. Exporters had met both commerce minister Kamal Nath and finance minister P Chidambaram on January 8 and were assured that the tax would be scrapped, an official told FE. Admitting one such petition filed by the Indian Exporters Grievances Forum (IEGF), the Delhi High Court had issued notice to the finance ministry in May 2006.

However, the matter was adjourned several times and the ministry did not file their reply even on Friday. The ministry instead sought time. The court then said as the last opportunity, the finance ministry would have to file its reply by April 23, the next date of hearing.

THE RELIEF
SERVICE TAX was introduced to include exporters, availing services of foreign-based commission agents
THE TAXABLE amount for this service tax is estimated at $1.2 billion
WITH A 12% service tax on them, exporters cough up
$144 million
 
Meanwhile, Tamil Nadu Spinning Mills Association has won a stay order against the government from the Madras High Court in a case.

Exporters said such a service tax, that too with retrospective effect, would make them suffer, as there is no mechanism to refund it adding that such a tax is "illegal and unconstitutional". It is against the government policy that exports must be tax-free.

IEGF alleged that the government had extended the territorial jurisdiction of the Finance Act beyond the territory of India without having any substantive provisions under the Act. But the finance ministry had said these instances of service tax falls under the "business auxiliary service" category, where by from September 2004, the government can levy charges from the exporter for the services taken from agents with offices outside India.

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