Service Sector - Export market

India’s services sector has matured considerably during the last few years and has been globally recognized for its high growth and development. This sector has been growing at an annual growth rate of about 28% during the last 5 years. Services exports amounted to a meager US$ 8.9 billion in 1997 but over the years services exports have  grown substantially. There has been rapid growth in the services exports from the year 2002. The exports have grown up from US $ 19.1 billion to US $ 73 billion in 2006. Presently services sector account for about 55%  of India’s GDP.  

India's service sector contributes more than 55 per cent of GDP, making it the most formidable component of the country's economy. An extrapolation of Reserve Bank data by India Brand Equity Foundation in fact shows that service exports could topple merchandise exports in the medium term. The Government of India is taking up most care to uplift this potential sector which contributes heavily in India’s Foreign exchange.

DECISION ABOUT CHOOSING –  

1) EXPORT MARKET visa-vis Local Market

2) Services Sector export  visa-vis – Merchandise export

First of all one should evaluate whether to go for export or concentrate in local market. If an Individual or a company is planning to explore themselves and encash opportunities in the International market. It should decide that in which direction and area to establish itself. Like it has to decide whether it should establish itself in the export of goods or services. Export of goods means physical exports of merchandise and all non-physical export comes under export of services. So, it is advisable that critical research  may be done by the individual or the company whether to export goods or services.

Searching a buyer for your services or product is very critical job as no one is waiting for you to come and buy your products or services.  Some major means adopted these days are for searching buyers  through internet, participating in Trade Fairs abroad, participating in BSM’s, interacting regularly with Trade and Commerce organizations abroad or having membership of a council as they are the gateway of country’s trade. One should also enroll himself with some trade magazines which regularly publish trade and tender enquiries. Apart from that, the most effective means these days are hosting one’s  profile and product/services   on the Internet,

TIPS FOR EXPORTER AFTER SELECTING SERVICE SECTOR AS A FIELD OF EXPORTS 

With the growing competition and technology change regularly now-a-days, there is a need of comprehensive strategy and follow-up for entering in exports market.  The following are some of the measures for successful exporters:

STRATEGY  

In order to be successful in exporting one must research its markets. No one should ever try to tackle every market at once. Many enthusiastic persons bitten by the export bug fail because they bite off more than they can chew. Overseas strategy for services must be carefully considered.   All services must be efficiently planned. They must be processed with due regard to the need of the export markets.

SELLING KNOWS HOW

One should concentrate on making  ‘own brand’ of theirservices , which is much demanded by buyers in overseas .

FAST  DELIVERY OF SERVICES

Services must be delivered as per the time framed.  Late executions of services are not always the exporter’s fault.  But such difficulties can invariably be overcome, and anyone contemplating entering export for the first time must be determined to let nothing stand in the way of-fast and efficient  execution of services . In most of the cases person rendering the service is himself responsible for timely delivery unlike physical export and hence this must be ensured.

PROPER COMMUNICATION

Communication internal and external must be far-reaching and speedy. Good communication is vital in export of services. Failure to reply promptly to letters, using sea mail to answer airmail letters are everyday errors and speed and timely action is essence of export communication.

FOLLOW UPS AND FEED BACKS

Follow up and feed back  should be well taken care in the service exports and with the growing competition, customer satisfaction should be given upmost priority. After execution of services also, the exporter should attain the feedback of the services he has rendered so that in case  of any improvement is required in further orders can be attended.

ADMINISTRATIVE ISSUES

Apart from all the above issues, an individual have to decide –  

• tyle of operation whether as an individual or as an corporate entity

• Legal angle like IEC code, banking operations,etc

• Selection of logo, name and their registration, etc from the competent authorities.

• Taking membership of respective organizations like STPI in case of dealing in software exports 

CATEGORIES OF SERVICES

Following services fall in this category (arranged alphabetically)

• Air travel agent (l) * Airport Services (zzm) * Authorised service station (Light motor vehicle) (zzj) * Authorised service station (Motor car/ Two-wheelers) (zo) * Beauty treatment (zq) * Business exhibition  (zzo)

• Cargo handling (zr) * Chartered Accountant’s Services (s) *  Cleaning activity (zzzd) * Clearing & Forwarding Agent (j) * Club or Association services (zzze) * Commercial training or coaching (zzc) * Company Secretary Services (u) * Convention (zc) * Cost Accountant Services (t) * Courier (f) * Credit rating agency (x) * Custom house agent (h)

• Dry cleaning (zt) * Erection, Commissioning or installation (zzd) * Event management (zu) * Fashion designing (zv) * Forward contract  (zzy) * Health and fitness (zw)

• Internet access (zzf) * Maintenance or repair (zzg) * Mandap keeper (m) * Market research agency (y) * Opinion poll  (zzs) * Other Ports (zzl) * Outdoor Caterer (zzt) * Packaging Activity (zzzf) * Pandal or Shamiana  (zzw) * Photography (zb) * Port (zn)

• Rent-a-Cab operator (o) * Security agency (w) * Sound recording (zj) * Steamer agent (i) * Stock-broking (a) * Storage and warehousing (zza) *  Survey and exploration of mineral  (zzv)

• Technical inspection and certification (zzi) * Technical testing and analysis (zzh) * Tour operator (n) * Transport of goods by air  (zzn) * Transport of goods by road  (zzp) * Travel agent (other than air travel agent and rail travel agent) (zzx) * Underwriter (z) * Video production agency (zi)

Service provided from India, but recipient of service outside India – Remaining services, which fall in third i.e. residual category, will be treated as ‘export of service’ if recipient is located abroad. These can be treated as ‘export of service’, even if the service is provided from India [rule 3(3)].

Following services fall under this category (Arranged alphabetically) –

• Advertising agency (e) * Banking and Financial services (zm) * Broadcasting (zk) * Business auxiliary services (zzb) * Cable Operator (zs) * Computer network (On-line information and data base access or retrieval) (zh) * Consulting Engineer (g)

• Facsimile (FAX) (zg) * Foreign exchange broking (zzk) * Franchise (zze) * General insurance of other than immovable property (d) * Insurance Auxiliary (zy and zl) * Intellectual property  (zzr)

• Leased circuit (zd) * Life insurance  (zx) * Management Consultant (r) * Mailing list compilation and mailing (zzzg) * Manpower recruitment agency (k) * Pager (c) * Programme Producer (of TV or Radio programmes) (zzu)

• Rail travel agent (zz) * Scientific and technical consultancy (za) * Survey and map making of other than immovable property (zzzc) * Telegraph (ze) * Telephone (b) * Telex (zf) * Transport of goods through pipeline or other conduit (zzz)

In case of services falling under third category, there are certain conditions and restrictions if the recipient has a commercial or industrial establishment or any office relating thereto, in India. These are discussed in next paragraph.

Recipient abroad but has establishment in India

As explained above, in case of certain specified services falling under third category, service provided will be treated as ‘export of service’ even if service is provided from India, if recipient of service is out of India. However, if the recipient has office or establishment in India, the service will be treated as ‘export of service’ subject to certain restrictions and conditions.

Note that the provisions discussed below apply only to services falling under the third category i.e. rule 3(3) and not in respect of all services.

Taxable services provided and used in or in relation to commerce or industry – If the taxable service is provided and used in relation to commerce and industry and recipient is located outside India, the service will be treated as ‘export of service’ only if following conditions are satisfied –  

• order for provision of such service is made by the recipient of such service from any of his commercial or industrial establishment or any office located outside India; 

• service so ordered is delivered outside India and used in business outside India; and  

• payment for such service provided is received by the service provider in convertible foreign exchange.

Note that these restrictions are applicable only if – (a) the recipient has any commercial or industrial establishment or any office relating thereto, in India and (b) the taxable service is used in relation to commerce and industry.

Facilities & Incentives to Service Exporters

Eligibility        

All Service Providers, of services listed in Appendix 10 of HBP vl, who Have a total free foreign exchanges earning of at least Rs. 10 Lakhs  in Preceding financial year shall qualify for Duty credit scrip.  For Individual Service Providers, minimum would be Rs. 5 Lakhs.

Entitlement           

All service Providers (except Hotels, Restaurants and other Service Providers in tourism Sector) shall be entitled to Duty credit scrip Equivalent to  10% of free foreign exchanges earned during preceding Financial year.

However services and service providers as listed in Paragraph 3.18. 1 Of H0BP v1 shall not be entitled.

Remittances         

Free Foreign exchange earned through International credit Cards and other Instruments as permitted by RBI for rendering of service shall also be taken in to account for Duty credit scrip.

Hotels, restaurants & Other Service Providers in Tourism Sector    

Hotels of one-star and above (including managed hotels) and heritage hotels approved by DoT and other Service providers in tourism sector registered with DoT shall be entitled to duty credit scrip equivalent to 5% of free foreign exchange earned during proceeding financial year.

Stand-alone restaurants will be entitled to duty credit equivalent to 10% of foreign exchange earned by them in proceeding financial year.

Imports allowed   

Duty credit scrip may be used for import of any capital goods including Spares, office equipment and professional equipment, office furniture and Consumables; that are otherwise freely importable under ITC (HS), Imports Shall relate to any service sector business of applicant.

Utilization of Duty credit scrip earned shall not be permitted for payment Of Duty in case of import of vehicles, even of such vehicles are Freely importable under ITC (HS).

In cases of hotels, golf resorts and stand-alone restaurants having Catering facilities, Duty Credit scrip may also be used for import Of consumables including food items and alcoholic beverages.

Non Transferability  

Entitlement / goods (imported/procured) shall be non transferable (except with in group company and managed hotels and be subject to actual User condition.

Procurement from Tourism Sector           

Utilization of Duty Credit Scrip shall be permitted for payment of excise duty in terms of DoR notification issued for procurement from domestic sources. Of items  permitted under Para 3.3.4.5.  

At present, Hotels & Restaurants are required to submit a Chartered Accountant certificate that the entire duty benefits availed under the “Served from India”” Scheme have been passed on to the consumer. From now on, only the declaration will suffice.

Service Tax on Exports of services

Exemption from Service tax on services (related to exports) rendered abroad enunciated the principle that we should only export goods and not the taxes and duties with this, services rendered abroad and charged on exports from India would be exempted from Tax. Exemption / Remission of Services of Service Tax on export of goods, Service tax on services from India and utilized by exporters would be exempted / remitted. Remission mechanism institutionalized after working out modalities with Department of Revenue (DoR).

With effect from 1^st March, 2007, Rule 3(2) is amended and the words ‘delivered outside India and used outside India has been substituted with the words “provided from India and used outside India” and also clarify that the both rule 3(1) and 3(2) are to be satisfied for provision of service to be treated as export of Services.

EPCG Scheme

The Government of India have given special incentives and concessions to people exporting goods and services under EPCG Scheme. Under Export Promotion Capital Goods (EPCG) scheme, a license holder can import capital goods (i.e. plant, machinery, equipment, components and spare parts of the machinery) at concessional rate of customs duty of 5% and CVD and special duty. Import of spares of capital goods is permitted, without any limit in this scheme. Our expert professionals helps our clients complete all the formalities towards acquiring this scheme. There are other benefits like Technology  upgradation, transfer of capital goods for hotels, etc.

Status Category

Applicant shall be categorized depending on his total foreign exchange earning  during current plus previous three years upon exceeding limit below. For export house status, export performance is necessary in atleast two out of four years.

• Export of services are entitled for double weight age on exports made for grant of status and hence sector sector enjoy the status on achieving 50% of threshold marked for goods sector. The limit indicated above has taken into account the double weight age available.

Since service exports may be delivered in support of product exports, a sensible approach for some beginning exporters is to follow the path of complementary product exports. For years, many large accounting and banking firms have exported by following their major international clients abroad and continuing to assist them in their international activities. Smaller service exporters who cooperate closely with manufacturing firms are operating internationally and aim to provide service support for these manufacturers abroad.