FIEO flays export of services rules

NEW DELHI: Federation of Indian Export Organisations on Tuesday sharply reacted to the new Export of Services Rules, which will come into force from March 15, saying these will increase the transaction cost of exports.

"At a time when the government is claiming to move in the direction to reduce transaction cost for making Indian exports competitive, the new rules will increase these costs further," FIEO president O P Garg said in a statement.

In the new rules, notified by the Finance Ministry on March 3, if a resident receives any taxable services rendered abroad, he would have to pay service tax, he said.

This means that an exporter would have to shell out substantial money for paying tax on foreign buyer commission, warehousing abroad, expenditure incurred on distribution services, transportation and any other charge remitted to foreign buyer, Garg added.
This would increase the transaction cost by about 5 per cent and affect sectors like textiles, handicrafts, carpets and engineering among others, he said, adding imposition of the new tax would make Indian exports less competitive by about 10-15 per cent.

Services like hotels, tourism, hospitals and education would also become more costly as the exemption to such services if paid in foreign exchange would no longer be available, Garg said.