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Service tax on changing money
March, 21st 2008

In the proposed financial budget for 2008-2009, service tax will be linked to money changing activities. The same was proposed four years back.

It is unfortunate that money changing activities are linked to that of forex brokers when both activities are different in nature and kind.

Broking is definitely a service-oriented activity inasmuch as a broker provides service to two different parties and brings them together for a definite transaction.

Money changing is purely a trading/merchant-oriented activity whereas the trader buys and sells a commodity (money) for exchange against another commodity (money).

Here, value consideration takes place. Buying and selling will be at different levels and linked to market movements which will differ from day to day, hour to hour, minute to minute, and even customer to customer.

The accounting system for both the segments forex brokers and money-changers are different.

The following must also be thought of if service tax is to be made compulsory:

Money changers will definitely account the service tax on the individual who will be buying or selling foreign exchange;

will be additional cost to the buyer and seller of foreign exchange;

To get rid of the problem of additional cost, will they (buyer and seller) move to the unauthorised market once again?

This will definitely defer with the idea of Money Laundering Act.

In view of the above, it is essential that discussions are encouraged and an understanding is reached before service tax is introduced on money-changing activities.

Aspy Bharucha Ahmedabad

 
 
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