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Finmin advisors for reforms in tax structure for services

business Updated: May 02, 2010 11:25 IST

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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.