Exporters want bonds in lieu of tax refund

Long delays in service tax refunds prompt move as they can sell the papers to realise money.

Faced with long delays in getting refund on service tax, exporters have sought bonds in lieu of the reimbursement amount. This, they said, would increase their competitiveness as their fund requirement would come down.

“There is a mechanism for refund but it is not effective due to lengthy documentation and cumbersome procedures,” said AS Sakthivel, president of the Federation of Indian Export Organisation (FIEO), a trade promotion arm of the commerce ministry.

Service tax refund is offered on nearly 20 services used by exporters to manufacture goods meant for overseas sales.

At present, an exporter has to submit documents related to the services subscribed as well as prove that they were used while making or exporting a product. Exporters claim they do not benefit because of the complex reimbursement procedures.

Sakthivel said the scheme could first be implemented on gold card exporters and extended across the board if found successful. The Gold card scheme, started by the Reserve Bank of India, extends easy and fast credit access to exporters who have a good track record of servicing loans.

Exporters will be able to sell the securities at a discount or a premium and realise the money immediately.

The FIEO said such a mechanism would lead to more competitive pricing in the international market. Trade analyst said a more effective solution to the issue would be fast provisional refund of a percentage of the total service tax paid before the processing is completed.

“Bonds can be an effective solution in case of lack of funds with the government. But in this case, where the problem is timely delivery, bonds may not help much. Also, the bonds need to be freely tradable,” said Rajiv Dimri, trade analyst with BMR Associates. “We pay taxes to states which are not refunded. Till the Goods and Services tax (GST) is in place, an alternative solution is needed,” Sakthivel said.

GST, which will replace excise duty and service tax at the Centre and VAT at the state level, is scheduled to be introduced in the beginning of the next fiscal.