Finance ministry advisors calls for reforms in taxes for services

Finance Ministry advisors wants reforms to be introduced in the tax structure for services like shipping, aviation and telecom to make them competitive.

A working paper written by H A C Prasad, Senior Economic Advisor, Finance Ministry and R Sathish, Additional Economic Advisor asked for rationalising the tax structure in the shipping industry, which pays 12 direct and indirect taxes currently.

Taxes like corporate tax, minimum alternate tax, dividend distribution tax, withholding tax on interest paid to foreign lenders, wealth tax, VAT, lease tax and service tax raise the effective tax rate of around two per cent under the tonnage regime to around nine per cent, said the paper, titled Policy for India's Services Sector.

The paper called for service tax exemption on import of services like brokerage, commission, general insurance, ship management services and supply agency services to put the Indian shipping industry on a level playing field with foreign ship owners, who can obtain these services from foreign suppliers with no service tax payment.

The paper recommended exempting capital goods required for construction of ships from excise duty, on par with ship repair. Currently, the duty is levied at 16 per cent.