The Hindu Business Line : `Scrap service tax on foreign commission'

Citing the Union Government's own thinking that taxes and duties should not be exported if the country has to make an international trade engagement of $500 billion a reality in the next five years, the Engineering Export Promotion Council (EEPC) has suggested that service tax on commission paid to foreign agents by exporters should not be levied.

Briefing presspersons here on EEPC's Budget expectations, Mr Rakesh Shah, Chairman of the Council, said such a levy was adding to the cost disability factor (to the extent of an additional two per cent) plaguing Indian exports, said to be around 17 per cent now.

Fearing that this may eventually render Indian exports, particularly of engineering goods, uncompetitive in global markets,

Mr Shah also sought a clarification from the Government to the effect that only services received in India by residents in India be taxable and that services received abroad should be outside the tax net. He felt this would take out from the purview all services received abroad like participation in foreign fairs on which all applicable VAT etc are paid in the foreign country.

As per a recent study by EEPC, the impact of service tax worked out to 1.58 per cent of the f.o.b. exports

Mr Shah said the cost advantage faced by exporters in South East Asia was barely 2-3 per cent. He, however, sounded confident that EEPC would well exceed the engineering exports target of $18.3 billion for 2005-06.

Stressing on the changing role of the Council in the current context, he said services export in the form of Engineering Process Outsourcing (EPO) was now emerging as a major area, and such levies on commissions paid to foreign agents would prove counter-productive for our export efforts. He said such levy on commissions paid to foreign agents by merchant exporters (who cannot do without an agent) was totally unjustified.

Mr Shah said the council has also planned to commission a product specific and market-oriented study on China, to assess the scope for Indian engineering exports there, which could yield something like $10-12 billion of exports. We need to identify the thrust markets, he clarified.

He said the consultant has not yet been finalised, though Ferguson & Co had done the earlier study on the global potential of Indian engineering exports for the council.

He also sought a re-think on fringe benefit tax levy, saying the exporters willy-nilly have to incur expenses on items such as foreign tour and travel, telephone expenses, entertainment and hospitality, sales promotion & publicity and hotels, boarding and lodging. These are genuine expenditures essential for promoting and maintaining exports, and should not be subjected to FBT, he pointed out.

Seeking a level field, in the context of the recent Amendment Bill on Section 80 HHC benefit to exporters, he said the tax relief should be extended to all exporters, and not just to those under the Rs 10 crore threshold.

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