As part of efforts to boost exports, the government will grant exemption from service and central sales tax to all exporters.

The concession is slated to be announced in the National Foreign Trade Policy to be unveiled later this month. So far, the exemption was available only to units located in the Special Economic Zones.

Senior government sources told Business Standard that the finance ministry had given its nod to the proposal of the commerce and industry ministry.

While the service tax exemption is expected to be revenue neutral, the exemption from central sales tax is likely to cost the government around Rs 100 crore (Rs 1 billion) annually.

"The rationale behind the move is that since CST is a refundable tax, exempting the tax altogether will simplify existing procedures. Similarly, the service tax exemption is not expected to affect revenue earnings of the government," an official said.

Presently, units in Domestic Tariff Areas and Export Oriented Units have to pay taxes on any services used locally by them. For instance, units have to pay charges levied by the customs house agents on exports and imports.

Similarly, the central sales tax has to be paid by the DTA and EOU units on any raw material procured from across states. The proceeds of the CST is collected by the state but is refunded by the Centre to the exporters. Annual outgo on this account is estimated at around Rs 100 crore.

Officials of the Federation of Indian Export Organisation said the move would go a long way in benefiting exporters by reducing their cost of production.

"The move would also remove the discrimination between DTA and EOU units as presently, only CST paid by EOU units is refunded while that by the DTA units is not. We have been demanding that all the DTA units which export upto 75 per cent of their production should be given the benefits of EOUs," a FIEO official said adding that the move will help put DTAs at par with EOUs.

Exporters in Export Oriented Units had also been seeking exemption from service and sales tax at par with the SEZs on grounds that they too were 100 per cent export units.

As on April 2004, there were 1,814 EOUs and 805 units in SEZs functioning in the country.