The proposed service tax on the fee on foreign remittances to India is an ‘unjust cost’ on financial institutions that facilitate the remittances, says Adeeb Ahamed, CEO of the Abu Dhabi-based Lulu International Exchange Group.

Ahamed, also the director of Lulu Forex, the Indian subsidiary of Lulu International Exchange, told BusinessLine that the tax would mostly impact the Indian expatriates in the Gulf region who have helped India become the largest receiver of foreign remittances in the world.

The Central Board of Direct Taxes had last month 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. This was the reincarnation of a 2012 decision, which had been put on hold.

NRIs protest The decision had drawn flak from financial institutions as well as non-resident Indians’ associations. NRI associations were quick to point out that the tax would be passed on to customers and would give a boost to hawala remittances, which had greatly come down because of the fast and efficient services now being offered by banks and remittance agencies.

In the UAE, NRI remitters will have to shell out two dirhams for every remittance they make; it could be more in other countries.

“It’s still unclear how the Government is going to implement the new tax,” Ahamed said. “It is yet to issue guidelines on the collection of the tax and hence there is no idea how it will impact the financial institutions and customers.” The tax would certainly add to the cost of operation of the institutions.

Remittance to India Ahamed said 70 per cent of the remittances made by Lulu International Exchange was to India, and out of this, 60 per cent was to Kerala. He noted that the fast growing e-commerce all over the world was affecting the remittances business. Ahamed added that his company would soon launch multi-currency travel cards in India, mainly in the tourism centres.

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