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Tax bitterest pill for exporters
January, 25th 2007

Pharma, textiles, leather, metals & ores and engineering goods are among the sectors where exports are most affected by the incidence of high transaction costs, poor infrastructure and various cess and levies imposed by the government. According to a study commissioned by the department of commerce, aggregate impact of fiscals, inadequate infrastructure and complicated procedures was a high 13.24% of the total value of exports.

The study by Assocham noted the impact of transaction costs was the most on exporters who import more. High transaction costs for imports impacted the cost of manufacturing of exports that are import-intensive. The government should check the procedure of transaction costs in trade, in imports and exports, the study suggested. In short, price competitiveness is lower in case of items which are import-intensive.

Overall, cess and levies impacted exporters the most out of the three key components of export process, with incidence of around 5.22% of the f.o.b. value of exports. Infrastructural problems came next, impacting the exporters an average of 4.3% of export value. Export procedures affected exporters to the tune of 3.72% of the f.o.b. value.

In the metals & ores sector, incidence as a percentage of the f.o.b. value of exports was 19.39% with fiscals accounting for 7.79%, poor infrastructure for 7% and procedures for 4.6%.

Second in line was pharmaceuticals exports, where the total impact was 17.1% of the f.o.b. value with fiscals accounting for 6.84%, infrastructure for 5% and procedures for 5.26%.

Incidence on the leather sector was 17.06% of the export value with fiscals accounting for 5.30%, infrastructure for 5% and procedures for 6.73%, says the Assocham study which was submitted to the department of commerce recently. In textiles, the combined impact accumulated to 16.54% of the f.o.b. value of exports with fiscals accounting for 5.85%, infrastructure for 5% and procedures for 5.69%.

For auto exports, aggregate incidence totalled 16.42% of the f.o.b. value with fiscals accounting for 7.76%, infrastructure for 5% and procedures for 4.16%. Average impact on engineering sector totalled 14.38%, of the f.o.b. value of exports with fiscals accounting for 5.08%, infrastructure for 5% and procedures for 4.3%.

The incidence of the three factors was relatively lower for the agro sector at 10.16%, IT hardware sector at 7.03% and gems & jewellery sector at 3.3%.

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