SEZs Likely To Receive Additional Service Tax Respite

Special economic zones (SEZs) are expected to get new concessions related to service tax exemption on more activities. Sources said the commerce department was discussing the proposal with its revenue counterpart. The benefits, if firmed up, will be enjoyed by developers and units in SEZs.

The SEZ rules allow service tax exemption only on a limited set of authorised operations, which are activities carried out inside the zone and approved by the inter-ministerial Board of Approval (BoA) for SEZs. As a result, SEZ developers and units engaged in exports do not get service tax concession on a host of other activities.

For example, an exporter outside a zone is eligible for service tax exemption on port services, but his counterpart in an SEZ is not. Significantly, the annual supplement to the foreign trade policy, released in April this year, provides for service tax exemption to SEZ units. The commerce department is of the view that SEZ developers and units are getting far less service tax concessions than exporters who are out of these zones. Analysts point out that exporters outside SEZs enjoy Cenvat credit against service tax paid on a host of services subscribed to while engaging in export-related activities. In addition, the department of revenue recently permitted service tax exemption on seven services used by exporters. The commerce department hopes this will help the revenue department expedite the process of granting service tax exemption.