The government on Monday exempted exporters from paying tax on services rendered by ports, road transport and railways. The move could come as a relief to the beleaguered exports sector that has seen significant income squeezes as a result of a strengthening rupee.
"Government has decided to refund service tax paid by exporters on four taxable services, which are not in the nature of 'input services', but could be linked to export goods," a finance ministry statement said.
The revenue implications of the exemption, however, were not known. Commerce and Industry Minister Kamal Nath had abolished service tax on exports in the annual supplement to the foreign trade policy in April this year, although reports suggested that the finance ministry was not keen on the measure, as it would have major revenue implications.
Service tax paid by exporters on input services used for export goods is refunded under the existing schemes. The drawback scheme also factors service tax paid on input services used for export goods.
The ministry said that the decision to extend refund of service tax paid on services, which are not technically "input service", but could be linked to export goods was taken after holding discussions with stakeholders and the exporting community.
'Unlike goods, services are intangible in nature. Hence, post-audit verification to establish linkage of the use of service with export requires a simple and verifiable method. The government held discussions with the stake-holders and identified the services for which refund could be provided wherever use of these services could be linked to exports," the statement said.
The government imposes 12 per cent service tax along with 3 per cent education cess on services.
Exporters, however, were not upbeat with the announcement. Ganesh Kumar Gupta said: "A host of important services such as foreign sales commission, foreign travelling expenses, bank charges, professional fees, and participation in trade fairs abroad are still not exempt from service tax."
In July, the government had announced a Rs 1,400-crore package for the exports sector that included cheaper bank credit, increased rate of tax refunds and faster reimbursement claims.