Even as the Union commerce ministry has constituted a task force on transaction costs primarily to identify reasons for high transaction costs in exports, the pharma exporters have made several suggestions to reduce the transaction costs in exports.
One of the many suggestions made by the exporters to the DGFT-headed task force is the issue of huge CENVAT accumulation specially due to anomaly in rate of excise duty on input v/s. output and high rate of service tax on input services which has resulted into blockage of working capital and affected competitiveness in international market.
The exporters have asked the task force to introduce parity in the input/(12 per cent)/output(six per cent) rate of excise duty for pharmaceutical products. Another measure suggested by the exporters is that the pharma exports should be allowed to be cleared at marginal rate of duty (12 per cent as on inputs). This would benefit pharma exporters at no loss/burden to exchequer and domestic market. They asked the government to allow utilization of CENVAT credit for payment of service tax on reverse charge basis.
The exporters have also sought to allow easy and prompt refund of accumulated credit under Rule 5 of CENVAT Credit Rules and refund based on self –assessment and certificate issued by chartered accountant should be processed. Scrutiny of refund claims for issue based cases only and that is required to be made only after the sanction of the refund claim. They have also demanded payment of interest if the refund claim is not sanctioned within 30 days of the application.
Another major suggestion made by the pharma is to keep the activities of foreign office of Indian firms out of the purview of service tax to reduce transaction costs of the exporters. Exporters stressed that the activities carried out by the foreign offices of the Indian parent companies are not services in true sense of the term. In fact, the setting up of the foreign office is a need, if not compulsion, to increase the exports. These offices are essentially not revenue generating and therefore Indian parent companies have to necessarily fund their activities.
Exporters have also demanded that all payment made outside India for services meant exclusively for the purpose of exports should be exempted from service tax.
Regarding the amount of commission paid to the agents, which is exempted from service tax upto 10 per cent of the FOB value at present, the exporters have suggested that the rate of exemption limit is required to be raised to 12.50 per cent of the FOB value in line with the grant of export incentives. Export incentives are granted on FOB value after including commission upto 12.50 per cent of FOB value.
Besides, the exporters have suggested that all kinds of services which are directly linked to exports like clearing charges, agency charges, port charges, etc. should be exempted from the payment of service tax.