Goods & services cannot be treated on par under Foreign Trade act, feels MoF

The trade in services is set to acquire a new meaning with the government planning to define the term services. The new definition is expected to be in tune with the taxation laws. Services would be defined by amending the Foreign Trade (Development & Regulation) Act, 1992, an official source said. The aim is to bring clarity in the trade of services, it added.

The proposal, mooted by the commerce ministry, has been vetted by the finance ministry. The finance ministry is, however, not in complete agreement with the commerce ministry’s proposal and has suggested to keep the new definition in line with the provisions laid down in the tax laws as all services are not taxed in the country, sources said.

The Foreign Trade (Development & Regulation) Act covers trade in goods but does not have a provision for trade in services. The commerce ministry has proposed to extend coverage of the Act to facilitate trade in services, sources said. It has proposed to replace ‘trade in goods’ with ‘trade in goods and services’ in the Act.

The finance ministry, in its comments on the proposed move, has made it clear goods and services cannot be treated on par under the Act. This is especially because all cross-border services are not treated as imports or exports like goods. The practice is also followed internationally. Considering the complexities involved in determining the place of supply of service provision and its evolving nature, like classification of goods for Customs purposes, classification and determination of place of supply of services for international trade in services would have to done as per the provisions laid down by revenue department.

Moreover, there are also no uniform practices in deciding whether a cross-border transaction of service is import or export. This is especially in the case of services like telecom, broadcasting and electronic commerce, the ministry has pointed out. Sources said the proposed changes will have to be carried out keeping in mind that the provisions do no have an implication on taxation of services and service tax collections.

Source : Economictimes, indiatimes.com, dated 20/02/2008