Chidambaram and Nath: At loggerheads

New Delhi, April 24: A key policy measure on foreign trade has sparked a war of words between two economic ministries — finance and commerce.

The tiff is over the waiver of service tax on all exports that was announced by commerce minister Kamal Nath on April 19 as part of the foreign trade policy.

While the finance ministry has dubbed the decision unilateral, the commerce ministry has argued that it has the support of Prime Minister Manmohan Singh.

“No foreign trade policy can be announced without the approval of the Prime Minister,” a senior commerce ministry official said.

According to the official, there were several rounds of discussion with the finance ministry on the proposal and the Prime Minister’s clearance was obtained two days before the the policy was announced.

Since Parliament is in session (though in recess), a copy of the policy was delivered to the Speaker’s office before it was made public.

The official was reacting to reports that the finance ministry was “taken by surprise” by Nath’s announcement.

According to finance ministry officials, the concession to exporters has a major revenue implication and will not be notified unless the Prime Minister’s Office takes a decision.

When asked whether his ministry was opposed to the tax waiver, finance minister P. Chidambaram said, “I do not want to comment on it.”

The finance ministry also has reservations about other incentives to exporters such as the duty entitlement passbook scheme, which covers almost 60 per cent of the country’s exports.

The customs department has been complaining that there is a huge revenue loss because of the misuse of these schemes by unscrupulous exporters.

This is not the first time that these two ministries are at loggerheads. When the SEZ policy was announced by the commerce ministry, the finance ministry had said tax concessions to SEZs would cost the exchequer around Rs 100,000 crore.

However, Nath was of the view that the revenue loss estimated by the finance ministry “is notional”.

He had taken the stand that unless these tax concessions were given exports could not take place and if there were no exports there would be no incremental economic activity to generate tax revenues.