Service tax ‘to have no impact’ on remittances

By Ashraf Padanna/Thiruvananthapuram

The recently introduced service tax on remittance fee is unlikely to have an impact on foreign exchange inflow from non-resident Indians, experts said.

There were widespread protests against last month’s announcement by the Central Board of Excise and Customs that banks or remittance service providers will have to pay a 12.36% tax on their share of transaction charges.

Kerala, heavily dependent on the remittances from the Gulf for economic sustenance, had registered a strong protest with the federal government describing the move as double taxation that would “kill the goose that lays the golden egg.”

“First of all, the service tax is not on the amount we are remitting but on the charges levied by intermediaries,” said K V Shamsudheen, director of the UAE-based Geojit Barjeel Securities. “The receiving banks or the money exchanges are unlikely to pass this on to customers.”

Two years back, the board had clarified that there would be no service tax on foreign exchange remitted to India as it does not constitute a service and the charges or fee collected outside India are not be liable to service tax.

The latest circular reportedly came after it noticed that foreign money transfer service operators had opened their subsidiaries or appointed Indian banks and financial entities as their agents here.

On Tuesday, K C Joseph, Kerala’s minister for the diaspora, sent a missive to federal Finance Minister Arun Jaitley, demanding an immediate withdrawal of service tax saying the move would burden the expatriates already paying transaction charges on hard-earned savings.

“Most of them are doing menial jobs to support their families back home. It’s unfortunate that the government decided to tax them. The money they send also adds up to the country’s foreign exchange reserves,” he said.

Joseph also reminded Jaitley that his predecessor withdrew the move following a similar intervention by Chief Minister Oommen Chandy.

But industry sources say it would in any case be a paltry sum which the intermediaries should forego.

For instance, when an expatriate remits money from Qatar, the exchange house charges QR15 as remittance fee. From that small amount, the receiving bank in India gets a tiny portion which will not be more than Rs90 rupees and then the service charge at the rate of 12.36% will be less than Rs11.12.

“Some people are creating unnecessary panic saying it would encourage hawala (illegal) money transfer and so on. It will not encourage hawala business at all and we will continue sending money through banking channels,” Shamsudheen said.

Meanwhile, the Sharjah-based Pravasi Bandhu Trust that Shamsudheen heads, has submitted a representation to visiting External Affairs Minister Sushma Swaraj with a host of demands.

They include a friendly investment climate for NRIs, restoration of preferential allotment of shares during initial public offerings, abolition of short-term capital gain tax, investment options in the public provident fund (PPF), investment and insurance scheme for all NRIs whose monthly salary is less than $300, reduction of taxes on NRO accounts and housing complexes exclusively for them.

They are also demanding permission to invest in agricultural properties, participation in infrastructure development, relaxation of baggage rules and import duty on gold, preferential allocation of seats in engineering colleges and a permanent solution to their travel woes.