Put service tax on NRI remittances on hold: Tharoor

Parliamentarian Shashi Tharoor has sought Prime Minister Manmohan Singh’s intervention to put on hold the proposal for imposing service tax on overseas remittances fees levied by banks that takes effect on July 1.

In a letter to the prime minister, the former UN undersecretary general said a more detailed examination of the adverse implications of the move, especially for the millions of non-resident Keralities working in ordinary jobs in the Gulf region, was needed.

“It has generated tremendous resentment across Kerala,” Tharoor said.

“This is a shortsighted measure which risks diverting remittances to hawala channels and tempting otherwise law-abiding citizens to indulge in undesirable malpractices. At a time when the country needs to attract inward remittances and investment, any measure which discourages these should not be contemplated.”

India proposes to charge 12.36 per cent service tax, including additional cess on it, on the fees paid to banks while sending money back home.

This service tax will be deducted from the remittances sent by the diaspora.

More than $63billion comes to India annually in remittances which accounts for more than 3 per cent of India’s GDP which helps reducing the current account deficit.

“There must be a service tax on everything but I don’t know how it’s going to fall on the Non-Resident Indians. The finance minister will look into how it is going to impact overseas remittances,” Home Minister P. Chidambaram said while addressing a joint news conference here along with Information and Broadcasting Minister Ambika Soni and Law and Minority Affairs Minister Salman Khurshid. The proposed service tax is, however, not the tax on the total amount remitted, as it is widely being spread in the social media.

The tax is applicable only on the bank charges, which will be passed on to the customers.

However, experts say the levy of service tax on money transfer-related services would act as a disincentive for NRI remittances and lead to reduced inflows, which has been falling since 2008 due to economic downturn.

It is feared that any reduction in NRI remittances would reduce the disposable income of the dependents and impact development in the respective states.