Customs duty to hit service exporters

BUDGET: THE DAY AFTER

Service exporters will be hit by the 4 per cent additional custom duty imposed on all imports. This is because while excise payments can be set off against the duty, the same provision is not applicable to service tax.

"For instance, if a telecom company imported some raw material but exported services, its burden will be higher with the countervailing duty," S Harishanker, Executive Director, KPMG, said at a panel discussion on the Budget.

Finance Minister P Chidambaram had pointed out that the countervailing duty was "VATable" and would not translate into additional burden.

On the positive side, Harishanker pointed out that the government has clarified in the Budget that now companies will not have to pay taxes on services offered by their foreign branches. Last year, the government had brought services availed at foreign shores under the tax net.

However, Chidambaram's move to increase the service tax rates and expand its scope caused much resentment among the exporters at the discussion organised by the KPMG.

Exporters present at the discussion pointed out that while companies exporting non-excisable goods do not have the facility to offset their liability against the excise duty paid, they were now burdened by higher rates. "In addition, now exporters are also apprehensive of rise in costs due to transportation of containers being brought under the net," R S Seshadri, Director Tilda Riceland, an exporter of basmati rice, said.

With respect to direct taxes, Sudhir Kapadia, Partner, BSR & Co, said even though the tax-to-GDP ratio was climbing it up, it was still much lower than the what was present internationally. He added that the Budget did not frame any major policy framework to encourage private participation in infrastructure.

CBDT Joint Secretary Anita Kapur pointed out that this year's Budget did not intend to take radical steps for revenue generation as the government expected to ride on the buoyant economy for higher receipts.

She added that the government considered the growth in agricultural sector imperative for putting the nation on a 10 per cent growth trajectory. That explained the huge increase in spending on the sector, she said.