THE rate of refund on service tax against payment toward foreign agents’ commission for exports has come as a disappointment to the exporting community. Ignoring the RBI guideline of pegging the refund limit at 12.5% of FoB value of exports, the finance ministry has finally allowed the tax refund at 2.5% of FoB value of exports.
Exporters have become entitled to refund of that service tax from April 1, 2008. This is one of the long-awaited sops they were demanding from the government to combat rupee appreciation against the dollar. Exporters are now eligible for refund on service taxes against 16 services. The refund on service tax against payment towards foreign agents’ commission for exports is one such sop that has been recently cleared by the finance ministry.
Taking up the exporters’ cause, the Engineering Export Promotion Council (EEPC) chairman Mr Rakesh Shah said the refund rate on account of that service, which is an essential component of exports, is very poor considering that the government has allowed exporters to pay commissions to foreign agents up to 12.5% of FoB value of their exports.
Fixing the refund rate on this count at 2.5% of FoB value of exports also goes ultra vires to the RBI guideline, which has recommended that foreign commission agents should be paid up to 12.5% of FoB value of exports for export promotion. Moreover, by fixing the refund rate at that level, the finance ministry has contradicted its own stand.
The department of revenue in a previous circular has clarified that for those exporters availing of export benefits, the limit for foreign agency commission is 12.5% of FoB value of exports, claimed Mr Shah.
The EEPC chief added that most exporters pay commission to their foreign agents only after realisation of export proceeds. The period for export realisation allowed by the RBI is 180 days for exporters and 360 days for status holders. As such, if exporters have to claim service tax refund within 90 days, as fixed by a notification dated October 6, 2007, it would squeeze working capital of small and medium scale exporters who are facing this problem due to rupee appreciation on top of escalation in prices of raw materials, he added.