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Service tax on fee for NRI remittances to be paid by money exchange firms

Posted Mon 02 Jul 2012 03:47:21 pm in News, Business | By Dubib.com News Desk

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Money exchange companies in the UAE on Sunday said the proposed service tax on the fee for remittances to India is to be paid by them, not by their customers who remit money, through banks allied with them.

 

The new theory regarding the much debated 12.36 per cent service tax linked to their remittances is likely to bring cheer to the Indian expatriates in the UAE. However, industry sources say that exchange houses may soon pass on this loss, though miniscule per transaction, to their customers.

To be levied from July 1, the proposed tax had created much fuss among the Non Resident Indians (NRIs) in the UAE when initial reports pegging it on remittance amounts were widely circulated on social network sites. When the subsequent reports, including in Khaleej Times, said the tax would be on the service fee for transactions, it was thought to be the Dh15 fee that customers pay to the exchange houses.

However, representatives of at least three leading exchange companies that primarily transfer remittances to India told Khaleej Times that banks tied up with them have clarified that the service fee will be on the charges they pay to the corresponding banks, not the fee that they take from customers.

“That is the information that we have received from our partner banks,” said Promoth Mangad, the Vice-President, Global Operations, UAE Exchange.

“A similar fee was proposed earlier also. But, it was revoked after the exchange companies raised concern,” he said.

Though no official confirmation from the Indian government has been available, similar information has been received by Al Ansari and Al Ahalia exchange companies from their partner banks.

Mohammed Aslam, a senior forex dealer with Al Ansari Exchange, said exchange houses pay about Rs50 to their partner banks for each telex transfer. “The fee may differ from bank to bank depending on the contracts the exchange companies have with the banks. Anyhow, what we have heard is that the tax will be on this fee and no additional amount will be taken from the customers.”

He said there was no information regarding any tax on the profit-sharing formula that exchange companies have with private finance companies and agents through whom instant remittances are made.

Mangad said usually the invoice for the service fee to the banks are issued weekly or monthly basis. “So we don’t know if the banks have already started taking it.”

However, several customers remained confused about the new fee and exchange houses received plethora of enquiries related to it, especially because the news related to this came out at a time salaried Indians send money home.

Pradeep Kumar, Manager of Al Ahalia’s Bur Dubai branch, said customers were still confused if and how they would be “taxed.” “Many customers were asking if they had to add Dh2 to the Dh15 service fee or to the remittance amount. Some were still worried that the tax is on their remittance amount.”

Exchange houses said the Indian government should clear the air by issuing clear-cut rules. They said they will also take up the matter with the Foreign Exchange and Remittance Group (FERG) in the UAE that had unified the service charges of money exchanges at Dh15.

“If this new tax is going to be a continuous loss, exchange companies will have to tackle it by passing it on to the end user, i.e., customers. But, we will have to discuss that through FERG,” said an official who did not want to be named.



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