- City Fajr Shuruq Duhr Asr Magrib Isha
- Dubai 04:50 06:04 12:15 15:39 18:20 19:34
Fifty-seven money exchanges in the UAE have jointly appealed to the Indian government to reconsider a decision to impose tax on service charge paid by expatriates to remit money home, as the group feels such a step will increase cost of remittance for low-income expatriate workers who form the bulk of their customers.
Expatriate associations and foreign exchange dealers in India too have raised objections to the new tax plan, which was shelved two years ago due to similar reaction from the Gulf and India.
Speaking to ‘Emirates 24|7’, a senior official of the Foreign Exchange and Remittance Group (FERG) said a formal request has been made to the Indian government to reconsider the decision, because any service charge imposed on expatriate remittance will be indirectly borne by the customer or their families.
Of the 130 exchange houses in the UAE, 57 are members of the Foreign Exchange and Remittance Group (FERG), a remittance industry organisation. The group is licensed by the Dubai Chamber of Commerce & Industry (DCCI) and works under the aegis of the Central Bank of the UAE.
The decision to impose service charge on expatriate remittance fee was revoked in 2012 due to strong opposition from money exchanges and NRI associations here and back home. This time too there is strong opposition to the new plan to impose tax on the foreign exchange remittance by overseas Indians.
Even though the Indian government’s instruction was to start imposing service tax from September 15, 2014, exchange companies have not yet started charging the additional service tax from their customers.
While the amount may be small for an individual customer, for a foreign exchange dealer or exchange company handling thousands of transactions, the tax will become a burden and they will be shifting the burden to their customers.
Last year, money exchanges increased remittance fees for four countries from Dh15 to Dh20 –for remitting more than Rs50,000 to India, 50,000 taka to Bangladesh, Rs50,000 to Sri Lanka and Rs50,000 to Nepal. Fees for remittances below Rs50,000 remains unchanged.
“While the cost of remittance elsewhere in the world is 10 to 20 per cent, remittance charges have been kept low in the UAE as majority of the customers are low paid blue collar workers.
“While the World Bank is keen to reduce the remittance cost, we are charging only 3 to 4 per cent of the remitted amount. High remittance cost will push customers to use illegal and parallel channels of remittance like hawala,” said Y Sudhir Kumar Shetty, vice-chairman of the group.
Before the two devaluation of Indian currency in India, the difference in the exchange rate offered by the illegal channels (hawala) and formal channels was about 25 per cent and imposition of the new tax on remittance may force customers to go back to the illegal route, he said.
“In any service industry like hotels or hospitality, service tax is ultimately borne by the customer. In the case of money remittance, the remitter will bear the cost, even if his family is paying it,” said Shetty.
Recently, India’s Central Board of Excise and Customs (CBEC) announced the imposition of a 12.36 per cent service tax on ‘fees or commissions’ charged by banks and financial institutions to remit money from abroad.
The remittance industry in the UAE is one of the most active in the world, with over Dh110 billion transferred annually from the country to expatriate workers' home countries.
“We have written to the concerned authorities in India that any tax on remittance service is not a welcome step, because it will push up the cost of remittance and tempt expatriate customers to opt for parallel money remittance services,” Shetty added.
Some Indian community associations and foreign exchange groups in India too have objected to the Indian government’s plan to tax the remittance service charges. NRI Associations in India, especially in states like Punjab and Kerala, with large expatriate populations, have also raised objections about the new plan by the Indian government.
“It is not a welcome move by the new Indian government because it will be a financial burden for the expatriate community, especially people who earn low salaries.
Kerala, being the largest recipient of foreign exchange remitted from the UAE and other Gulf countries, such a tax even on the remittance charges would hit the ordinary Indian expatriates,” said Anwar Naha, President, Dubai KMCC, Kerala Muslim Cultural Centre.
Many other NRI groups representing the Keralite community are also discussing the tax plan, especially because it is viewed as a prelude to imposing more taxes on their income.
The NRI Sabha in Punjab, representing overseas Indians from various districts of Punjab, have written to Prime Minister Narendra Modi, Finance Minister Arun Jaitley, External Affairs Minister Sushma Swaraj and Punjab Chief Minister Prakash Singh Badal.
Foreign exchange dealers and banks are also opposition the plan, as they fear the new tax would affect their remittance business. According to the World Bank, the worldwide cost of remittance is about 7.90 per cent of the amount sent and a five percentage point reduction in the remittance fees would save $16 billion a year for the migrant population around the world.
The World Bank estimated that remittances totalled $542 billion in 2013, of which $404 billion went to developing countries, involving some 232 million migrants.
The remittance cost to migrants is high relative to the low incomes of migrant workers, the amounts sent, and the income of remittance recipients.
Any reduction in remittance transfer fee would result in more money remaining in the pockets of migrants and their families, and would have a significant effect on the income levels of expat families, says the World Bank report on remittance cost across the world.
“If the cost of sending remittances could be reduced by 5 percentage points relative to the value sent, remittance recipients in developing countries would receive over $16 billion more each year than they do now.
This added income could then provide remittance recipients more opportunity for consumption, savings and investment in local economies.
Remittance charges are high for many reasons, remittance charges are frequently made up of a fee charged for sending a certain amount, a margin taken on the exchange rate when remittances are paid and received in different currencies, and, at times, a fee charged to the recipient of the funds.
These fee components may also vary according to how the receiver is paid (cash or by crediting an account), the speed of the transfer, and the ability of the sender to provide information about the recipient (bank account number),” said the World Bank report.
Follow Emirates 24|7 on Google News.