Financial sector to plead against service tax on remittances
November, 19th 2014
Amid an expected rise in the cost of remittance due to increase in service tax, the financial services industry plans to ask the Government to reconsider the decision.
Last month, the Central Board of Direct Taxes had issued a circular imposing a service tax of 12.36 per cent on the ‘fees or commission’ charged by financial institutions, banks or agencies engaged in the remittances business for facilitating transfer of money from abroad.
This was the reincarnation of a 2012 decision, which had been put on hold.
“It is a serious issue for the remittance industry and the NRI (non-resident Indian) diaspora. We definitely plan to send a representation to the Government on behalf of the industry,” said Kiran Shetty, Regional Vice-President – South Asia, Western Union Services.
The remittance providers are evaluating options on either absorbing the cost or passing it on to customers.
“From a corporate point of view, the service tax will have an impact as we handle huge volumes and the value of remittances that run into millions of dollars on a yearly basis.
“For a high net worth individual, it would not be much as on a remittance of ?100, the impact is 12.36 per cent, which is just about 20 cents on a dollar,” Sudhesh Giriyan, Vice-President and Business Head, Xpress Money, said.
Lack of clarity However, there is not much clarity among money transfer operators on the liability, applicability and frequency of payment of this tax, he added.
Those liable to pay may include any one or more of the following: the sender; the beneficiary in India; an operator or facilitator; and the receiving partner. The other possibility is shared fee between sender and the beneficiary, Giriyan said.
Promoth Manghat, Vice President – Global Operations, UAE Exchange, said, “We also need more clarity whether it will attract service tax on the treasury deals we do. We need to see who bears the cost but on a net basis, it will increase the cost.”