The recent controversy of the 12.36 per cent service tax set to be levied from July 1, 2012, on fees charged by money exchange companies for remittances by non-resident Indians, appears to be too much fuss over little.
The issue was brought to the public by a partner at KPMG, even before any such notification was reported by the national/vernacular press. According to the author, Sachin Menon, the proposal to levy “12.36 per cent service tax on the fees paid by NRIs sending money to their country” will “act as a disincentive for NRI remittances and may lead to reduced inflows.”
While it is extremely laudable that an issue that affects NRIs is being brought to public attention, the trouble is that the report tends to make a mountain out of a molehill.
That too would have been fine if the concerned authorities had taken timely action to allay the concerns. Instead what we see is people who can and should have made a difference, playing to the gallery and compounding the problem.
What in real terms does the 12.36% service tax translate to? Most exchange houses in the UAE charge a fee of AED15 dirhams on transactions to India made by what the author says are “employees, including many poor labourers.” That is equivalent to about AED1.8 or about INR 27 as per today’s rates.
Is this really a big setback for our ‘poor labourers’ so much so that they will rush to questionable hawala dealers, or as KPMG fears will lead to reduced inflows? Doubtful.
The money exchange business in the UAE and other Gulf nations is the most lucrative and most competitive so much so that jewellery merchants to supermarket owners rush to find their space in this sector.
Service fees by these exchange houses have seen periodical revisions that benefit the “poor labourers” as well as the rich, so there is no reason to be overtly apprehensive of this 12.36 per cent tax on the service charge.
But then why is KPMG raising such a ruckus over it ? And why is our Overseas Indian Affairs Minister Mr Vayalar Ravi all of a sudden terribly concerned about it?
In an interview with Gulf News (the paper waking up to the issue after three days of it being discussed on social media forums and vernacular media), he said:
“….the service tax may be around 10 per cent of the fee of remittance, which will be a small amount. Still, I am very much concerned about this move as it will affect millions of Indians, especially the low-income workers.”
If this isn’t platitude, what is? For a ‘very much concerned’ minister, why didn’t his Ministry bother to clear the air about the service charge, if he had already been aware of it? Why did he wait for a newspaper reporter to call him? And even when he speaks to the media, why doesn’t he get his figure right? Around 10 per cent is certainly not 12.36%. For argument sake, the 2.36% can still be a ‘matter of grave concern’ for the ‘poor labourers.’
Mention tax, and of course, NRIs will cry foul, as the public reactions cited in the Gulf News story show. There are people calling for protests in fear that if this is not challenged now, the Government will impose more taxes.
In a clearly populist move, instead of being rational, the daily itself has created the feel of an impending war, with a headline ‘Up in arms…..’ when what it needed to do was some objective research.
Surprisingly, no money exchange houses are quoted in the story, when we know that our money exchange houses have dime-a-dozen spokespeople who will rush to comment on anything under the sun.
However small be the amount levied (INR 27 can still buy you a breakfast in mofussil India), the questions that our reporters or KPMG failed to investigate or address are:
1. How will this service charge be levied? One social commentator (also a financial consultant), who endorses the KPMG partner for ‘highlighting such an important issue, or else we wouldn’t have known about it,’ says we must check our bank statements for the service charge deductions. If the money doesn’t go to banks, will it mean the beneficiary receives INR 27 less?
2. What is the role of the money exchange house in this deal? Obviously, any deduction will be made at the exchange house, which means the service charge will have to be transferred to the Government by the exchange. It might mean then that the exchanges must be more transparent in their operations, if they already aren’t.
3. Will the service charge of money exchange houses go up once the levy is in place? Instead of AED15, will the ‘poor labourer’ now have to pay AED17?
4. Will the money exchange houses that already benefit from all the remittances, step forward, and absorb the charge as a goodwill measure to the ‘poor labourers?’
For some reason, it all looks a bit murky… the secretive nature by which the tax is being implemented, the way our Ministry and Minister react, the silence of our money exchange houses…
The most obvious question is: Is this non-issue being whipped up to protect the interests of the money exchanges?
Of course, as a collective bloc, NRIs are the last to know of anything that concerns them.
Our welfare ministers call for protests against absurdities dished out by their own government.
If sincerity rules, shouldn’t the Overseas Ministry have acted on this issue proactively, even before it became a talking point? But then, that way where is the chance to gain the media share of voice and potentially more mileage?
I do not question the moral anguish that KPMG feels about our ‘poor labourers’ being fleeced by the Indian Government.
Having made a 14.8 percent growth in advisory revenues last year, maybe it was time to do some pro bono on behalf of the ‘poor labourers’ who struggle to support their families.
It is a hot summer here in the Gulf. The ‘poor labourers’ are slogging as usual so they can send some money home. At the very least, what we can do is not to confuse them.
Before reeling out the IMF figures, a call to the money exchange house or a source at the Ministry would have helped.
What this report has done is instil unnecessary fear among the people who remit money. The question being asked on and on is ‘will the tax be on the principal amount?’ Imagine, how much legwork the Government must do to clear the air…
But then, what fun would it serve if you are not seen as the ‘champion’ of the masses, although you very well know that none of those ‘poor labourers’ will ever receive the benefit of your wise counsel…
And please stop calling them ‘labourers.’ They are workers, as dignified about their job as anyone else is.
ENDS
Photograph of Indian workers from Construction Week online (no copyright violation intended)
First published in: The Kerala Inquirer
