No tax relief for overseas services

The Union finance ministry will not exempt services rendered overseas for executing export orders from the purview of service tax. This is despite the commerce minister’s announcement of the relief while unveiling the export import policy. According to officials in the finance ministry, the 14.4% growth in exports in June 2007 did not justify sacrificing revenues by granting the exemptions. The June figure was lower than the 18% growth achieved in May 2007.

The officials said that though the commerce ministry may have announced the exemption of tax on services rendered overseas, the finance ministry had not found any firm evidence that granting such an exemption would in any way mitigate the impact of the appreciating rupee on exports.

In view of the unkept promises of the exim policy, exporters are having to bear the burden of 12.5% service tax on all payments remitted from the country for services like commission agents who book orders, haulage from port to customers’ premises and expenses incurred in participating in B2B events overseas.

Back of envelop calculations by export organisations show that such expenses constitute 10-15% of the billing amount and a 12.5% service tax translated into an additional payout of 2% of the total export turnover.

“International business does not offer margins of more than 2-4% and the additional liability of service tax wipes off export margins in big markets which are very competitive in any case,” said P K Shah of Nipha Exports and former chairman, Engineering Export Promotion Council (EEPC).