The Commerce Department has prepared a proposal for inclusion in the upcoming Union Budget, seeking service tax relief for the cash-strapped export segment in the country. The proposal elaborates on the necessity of exempting exporters from paying taxes on services availed by them during the course of their business, instead permitting them to file a return as proof.

Presently, exporters are allowed to claim refunds after paying the service taxes. The tax rate is fixed at 10% of the value of the service availed. Exporters generally use services such as banking and other financial services, general insurance, port services, transport of goods by road or rail, technical testing and analysis, storage and warehousing, business exhibition services and specialised cleaning services.

According to the Finance Ministry, the process of tax refunds helps the ministry to monitor the claims made by exporting houses. However, the Commerce Department has suggested that providing a blanket exemption on taxes to exporters and asking them to file a return for the exemption availed would be a more effective practice than the process of refunding taxes paid on certain services.

"The existing procedure of claiming refunds on taxes paid is time-consuming and quite cumbersome. Often, the refundable amount gets locked with the government, thereby lengthening the process. With the liquidity crisis taking a toll on our fund flow, a delay in the clearance of refunds would affect us even more," said M Dhoot, proprietor of Marble Kingdom, a small-sized marble exporting company in Chennai.

Boon for SMEs

Considering that the export sector is dominated by small and mid-sized players, which operate on paper-thin margins, the proposed service tax relief would certainly be a boon for them.

The small players have been incurring heavy losses since October 2008, which marked the beginning of a slump period in the export segment in the wake of the global financial crisis. In May this year, India’s merchandise exports dropped for the eighth successive month, falling by 30%.

"Unless there is revival in the global demand, the lean phase in the export sector is likely to continue. However, it is becoming increasingly difficult for small companies like ours to even meet operational expenses under the present scenario," said Vivek Agarwal, CEO of Apex Enterprises, a small-scale supplier and exporter of sophisticated machineries in Kolkata.

Thus, small and mid-sized exporters are looking hopefully to the Finance Ministry to give its nod to the Commerce Department’s proposal and include it in the Budget 2009.

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