Friday, October 7, 2011

TAX REFUND LETTERS TO REACH IT FIRMS SOONThe finance ministry is firming up a pl

TAX REFUND LETTERS TO REACH IT FIRMS SOON: The finance ministry is firming up a plan to expedite payment of thousands of crores of rupees it owes the software and BPO industry in tax refunds.The move promises to bring some joy to the $50 billion information technology sector haunted by the deepening economic woes of the western world.A plan is being finalised to ensure refunds are issued expeditiously, a finance ministry official told ET on condition of anonymity.Chairman of the Central Board of Excise and Customs S D Mazumdar said the plan will be taken up by the board this week.Software makers in India are facing a huge pressure on their margins as fears of a recession in the US and debt crisis in Europe cripple their main export markets.Industry watchers say a settlement of pending refund claims during such a distress will help shore up the dwindling bottom lines of these companies.The IT and BPO industry,which employs over two million workers,has been consistently raising the issue of refunds with the government.Infosys Chairman Emeritus N R Narayana Murthy had even voiced the concern at a recent meeting of industry leaders with Finance Minister Pranab Mukherjee.Experts say the problem arises because of a linkage between input services consumed by the industry and output services that are exported. Since no taxes can be levied on exports, taxes on inputs used in the process of carrying out the exports are neutralised through refunds.In the IT sector, however,there has been an issue over taxes paid on input services consumed in the process of providing a service overseas. Although some inputs have been specified by the CBEC,confusion persists.This leads to delays in refunds or denials altogether.The government has made several attempts in the past to ensure speedier refunds through simplification of procedures,but this has failed to satisfy the industry.The process (of refunds) is very cumbersome and tedious, said Som Mittal, president of IT industry body Nasscom.Requirement of documentation has led to unnecessary delay in issue of refunds. In its last attempt to simplify procedures,CBEC had issued a circular clearing the ambiguity over definition of services used as inputs by technology and BPO companies.Service tax paid on inputs,such as transportation of staff,telecom facilities,software maintenance and up-grades,hiring of recruitment agencies and other related services were made eligible for refunds.But the industry says the conditions specified in the circular,such as proof of consumption of services, made the refund process cumbersome.''If there is a single query involving just Rs 1lakh,a refund of Rs 10 crore may be put on hold,'' Mittal said,pointing out that refund claims worth Rs 3,000 crore made in 2010-11 remain locked up.The finance ministry official quoted earlier said the proposal for speeding up the refunds will go to the finance minister for approval after it is cleared by the CBEC.''The guidelines will be issued by next week,'' the official said,adding that they will cover both dues of current fiscal as well as those of the previous financial years.Experts,however,say that easing of the process on its own will not help.Liberalizing procedures for grant of refund of service tax is welcome,but they should be implemented in actual letter and spirit by the field formations, said Bipin Sapra,partner with audit firm Ernst & Young.The ministry is also working on a drawback scheme to refund service tax for goods exporters.This is expected to become operational soon. –

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