Exempt export from VAT: Fieo

The Federation of Indian Export Organisation has sought the inclusion of fiscal, banking, marketing and infrastructure facilities in the forthcoming annual supplement to the Foreign Trade Policy.

Exemption from value-added tax and service tax should be included in the policy for exporters to achieve the export target of $150 billion before 2009. Fieo has also suggested fine-tuning of existing export schemes.

In a memorandum to Commerce and Industry Minister Kamal Nath, FIEO president OP Garg said though exports have registered an annual growth of over 25 per cent, it was on the back of a huge import bill expected to touch nearly $100 billion.

"We need to further augment our exports to earn additional foreign exchange and reduce trade deficit," Garg said.

Listing specific demands, the Fieo chief said exporters should be exempted from VAT along the lines of the exemption extended under sales tax.

Exporters are at present exempt from paying sales tax on submission of Form H. This facility should also be extended in the case of VAT.

"Our experience with Haryana where VAT has been in place since April 2003 shows that it takes 9-12 months to get refunds on VAT paid at the input stage. Exporters hardly have resources to pay and get refunds after long durations. Moreover, it reduces their competitiveness," he said.

Similarly, service tax should be exempted for all services used during the export of goods or services.

"The recent change in the service tax rules imposing a tax on import of services used in exports like commission and warehousing charges abroad, needs to be exempted if such services are being used by exporters," he said.

Garg said the facility of income tax exemption under Section 10-BA of the Income Tax Act to wood-based handicrafts should be extended to employment generating sectors like textiles, carpets, handicrafts and leather.

The government should also announce a scheme to refund part of the transaction cost borne by the exporters, he added.

"Our study has suggested the cost disability factors of our export ranges between 19-22 per cent, compared with 3-3.5 per cent in the case of our South East Asian competitors," he said, adding that un-refunded taxes and duties, high cost of credit, electricity charges and ground level transaction cost should be refunded.

Garg said the duty entitlement passbok scheme should be continued for six months after the announcement of the new scheme to enable exporters to work out their order costs.