Service Tax on Remittances from Abroad

A Disservice To The Diaspora: The move to impose 12.36 per cent service tax on remittances will ultimately burden the remitters or the recipients Nayan Chanda

A recent report on indices of global connectedness has revealed an interesting fact that throws light on the unsung heroes of the country’s economic growth. The latest DHL Global Connectedness Index shows India as a top destination for international phone calls — second only to Mexico in calls originating from the US and first for British international calls. What statistics show is not just the number of calls Indians in the US or the UK made to chat with family back home. It also highlights the role of the 25-million-strong diaspora, that has toiled to make India the world’s biggest recipient of overseas remittances, to the tune of $71 billion a year. The reward for this contribution, though, seems to be higher Indian service tax that would ultimately be borne by remitters or recipients. The scale of remittances is more remarkable when one considers the humble origins of most of the remitters. They are mostly ignored by Indian media, which celebrates policies ensuring higher FDI flow and praises jet-setting foreign investors for choosing India as their destination. Acres of column inches and hours on TV have been spent on analyzing the impact of the US Federal Reserve’s tapering or patting the backs of policymakers for the success in attracting FDI back to India. But few have taken note of the steady flow of money pouring in increasing amounts from NRIs, whose contribution to the national economy has consistently surpassed that of FDI. Remittances from the diaspora have risen from a mere $2.1 billion in 1990 to $71 billion last year — three times higher than FDI in 2013-14, and rivaling earnings through telecom and software services exports. Irrespective of the financial crisis and economic slowdown in the West, or falling oil prices, remittances by Indians abroad have kept growing. Nearly 31 per cent of the total remittances come from 3.3 million Indian workers in the Middle East, who endure terrible working and living conditions for years to help their families back home. About 30 per cent of the remittances come from the US, and 20 per cent from Europe. Although NRIs are among the wealthiest immigrant groups in the US and parts of Europe, they face increasing hostility from politicians and anti-immigrant groups in their adopted countries. From Europe, where joblessness remains high, to the US, where the mood remains anxious despite an improving employment situation, immigrants are seen as exacerbating economic malaise. The majority believes there are more immigrants than there really are. The DHL report notes people in eight countries of Europe believe immigrants constitute one-quarter of their country’s population, while in reality, it is half that. The US citizens estimated 42 per cent of the population was born overseas; it was actually only 14 per cent. Given the significance of remittances to the Indian economy, one would expect the government to take measures to recognize their sacrifice and contribution, and thank families in India, who suffer from separation as the price of the money orders that come in. But to the dismay of families and their breadwinners abroad, the Centre has decided to impose 12.36 per cent service tax on remittances. Although ostensibly intended as a service fee earned by the disbursing institutions, the burden will inevitably be passed on to either the remitters or the recipients. India government’s effort at the G-20 summit at Brisbane to urge developed countries to cut cost of remittance is laudable, but it would be more credible if the relief for the remitters started at home. As it has become customary, in January the Indian government will celebrate overseas Indians, where successful and rich NRIs will be duly recognised. It is high time that India also extends recognition to millions of hardworking citizens abroad, who cannot even dream of attending the Pravasi Bharatiya Divas, but whose sacrifice enables others to dream.(This story was published in BW | Businessworld Issue Dated 15-12-2014)