The Hindu Business Line : Budget `06: Exporters may get service tax rebate

EXPORTERS may hear some good news on the service tax front in the forthcoming Budget. Indications are that the Government might widen the coverage of the drawback scheme to provide for rebating of the service tax paid by exporters.

Currently, duty drawback payments are made to exporters to neutralise the customs and excise duties paid on inputs used in the manufacture of exportable products.

A Revenue Department-appointed study group on abatement of service tax for exporters is understood to have recommended the widening of the coverage of the drawback scheme to rebate the service tax forked out by exporters.

The exporting community and certain industry associations have been making a case for exempting exporters from the payment of service tax. There has also been a demand for neutralising the State-level levies. The Planning Commission was, however, not in favour of rebating these levies through the drawback scheme.

The drawback scheme currently serves about 30 per cent of the country's exports, value-wise. India's merchandise exports during 2004-05 stood at Rs 3,56,068 crore.

The Government may in the forthcoming Budget also come up with measures to ensure that service tax paid on input services used in the service exports is rebated/refunded. Any such move would benefit service exporters, especially those in the IT and software sectors.

Besides raising the issue of tax credit on input services used in service exports, exporters, at an Assocham session on service tax here on Saturday, also wanted the Government to come up with measures to rebate/neutralise the service tax applicable on certain types of expenses such as agency commission paid to foreign agents for procuring orders.

As of now, the Revenue Department is keen to rebate only the service tax paid on the inputs that are directly used for exported goods and not otherwise.

Service tax collections of the Centre have been buoyant this fiscal. As against a Budget estimate of Rs 17,500 crore for service tax collections for 2005-06, the Centre has already collected Rs 16,205 crore (April-January 2006). A senior Finance Ministry official indicated that the service tax collection for this fiscal is likely to exceed Rs 20,000 crore.

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Budget `06: Exporters may get service tax rebate