India begins levying service tax on remittance fee from abroad

India has started levying a service tax on “fees or commission” charged by banks and financial institutions for facilitating remittances from abroad.

This may slightly increase the cost of remittance to India, which will mainly affect the majority of low-income Indian expatriates in the UAE and other Gulf countries who remit money every month to their dependants back home.

However, it will not pose a big burden on expatriates as the tax is imposed only on the “fee or commission charged by banks for facilitating remittances” and not on the actual remittance.

The remittance fee from the UAE to India costs up to Dh20. A part of this amount is paid to the agents in India, which will attract the new service tax. As Gulf News reported on October 16, a circular issued by India’s Central Board of Excise and Customs (CBEC) on October 14 imposed a 12.36 per cent service tax on the “fee or commission” charged for facilitating remittances from abroad. But it was not clear whether the government would start levying it with immediate effect.

The agents in India who facilitate remittances from abroad have recently received notice from the Indian tax authorities to pay the service tax, effective October 15, a senior executive of the remittance service industry told on Tuesday.

“Although the fee or commission charged by agents in India [banks and other financial institutions in India] varies, it may be between Dh5 and Dh10 for remittances from the UAE,” said Y. Sudhir Kumar Shetty, vice chairman of Foreign Exchange and Remittance Group (FERG), an official platform of the companies engaged in the business of money exchange and remittances in the UAE.

Considering the fact that Dh10 is the maximum fee paid to agents in India, the 12.36 per cent tax may go up to Dh1.24 (Rs20.9), Shetty, who is also the COO of UAE Exchange, said.

Although it is a small amount for a single transaction, an agent doing thousands of transactions has to pay a huge amount as tax which may be passed on to the customers, he said.

A prominent financial consultant in India said although the tax is a small amount, it is unjustified as Non Resident Indians (NRIs) deserve incentives for bringing foreign exchange into India.

UAE Ministry of Labour will stop granting work permits to establishments not complying with judicial rulings

Saqr Ghobash, Minister of Labour, recently stated the Ministry of Labour will stop granting work permits to abstaining establishments if found not complying with final judicial rulings.

He pointed out that owners will be granted 30 days ultimatum to resolve court issues to avoid work permits blockage on their other facilities as well.
The suspension decision encompasses various types of work permits including labour recruitment, work permits and work transfers, family visa and temporary work permits and work permits for minors.

Humaid bin Dimas, Assistant Under-Secretary of the Ministry’s Labour Affairs, said, "The ministry has almost completed the data inventory of all abstaining facilities, in collaboration with the departments to ensure the smooth implementation of the resolution and achieve its desired goals."

"The suspension of work permits to abstaining establishments that refrain from implementing the final judicial judgments with regards to the labour issues, comes within the framework of country’s policies that are aimed at strengthening laws and respecting the verdicts issued by the judiciary system."

Bin Dimas noted, "The suspension decision supports the ministry's strategic plan to protect labour rights, and provide all forms of protection for workers, while ensuring the interests of employers are met in accordance with the national legislations, and in conformity with the international conventions and standards."

He pointed out that the decision, which was issued by the Labour Minister, constitutes one of the tools used by the ministry to enforce the adherence to the legislation, adding that the role of the ministry in labour disputes does not stop by just referring complaints not be resolved amicably between both sides to the court, but also contribute to the implementation of the verdicts.

It suspends the work permits for non-compliant establishments through cooperation with the courts.

"The Ministry of Labour’s policy in granting any facility a work permit for foreign manpower is based mainly on the extent of the employer’s commitment to labour laws by providing labour rights protection, providing basic living requirements and foremost pay them on time," bin Dimas said.

He also mentioned that the ministry will lift the suspension on the facilities after obtaining a request by the judge, stating that they have implemented the court verdict

First phase of compulsory health insurance cover in Dubai effective from October 31 2014

The Dubai Health Authority’s (DHA) first phase of compulsory health insurance cover effective October 31 will involve approximately 300 companies who employ 1,000 or more employees.

The first of four phases is expected to cover up to 700,000 employees, said authorities on Tuesday,

Non-compliance with the law will result in fines and penalties that will be levied on the erring companies who fail to pay the full cost of basic health insurance for each employee.

DHA Director-General Eisa Al Maidour said on Tuesday that the first phase of the roll-out will have far-reaching effects for workers who will now have basic health care.

“This is a major milestone in ensuring access to health care. This phase of implementation applies to approximately 700,000 employees in Dubai. By mid-2016, everyone in Dubai will have mandatory access to health insurance. So far, we are pleased with the results of the roll out and are thankful to all those employers who have supported us by adhering to the deadline. However, there are still some employers who have not yet met the deadline and we urge them to act promptly.”

The DHA director for Health Funding Dr Haidar Al Yousuf noted that the “legal requirement is for providing the basic insurance package that falls between Dh600-Dh700 annually. However, there are companies that are providing more than the basic package and also providing insurance cover for dependants. It’s a mixed bag,” he said.

Right now, the focus is the insurance cover for the employees. Having insurance cover for the dependants will be covered in Phase 3 of the implementation which falls in 2016. But the responsibility of providing insurance cover for dependants falls on the employee. DHA is working with insurance companies to provide reasonable cover for dependants, according to Dr Yousuf.

Providing information on how the law would be implemented, Al Maidour said that soon the DHA will use direct electronic links with relevant government stakeholders to enforce the law. “Health insurance will be linked to the residency visa in collaboration with the relevant authorities including free zones.”

In other words, no visas will be renewed without a valid insurance cover once the law comes into effect.

Remittance by NRIs to India draws service tax

Remittances by non-resident Indians may become marginally costlier with the Central Board of Excise and Customs clarifying that commission or fee charged by agent based in India from the overseas agent will attract service tax. The apex indirect taxes body has issued a circular to clear the air regarding taxation of remittances and services provided by intermediaries. The board has said no service tax will be payable per se on the amount of foreign currency remitted to India from overseas. However, an Indian bank or other entity acting as an agent to money transfer service operator, facilitating in the delivery of the remittance to the beneficiary in India for a fee will be liable to tax.

The board had issued a circular in July, 2012, after the country switched to negative list regime, wherein it had said there will be no service tax per se on the foreign exchange remitted to India from outside for the reason that money does not constitute a service and that conversion charges or fee levied for sending such money would also not be liable to service tax as the person sending money and the company conducting the remittance are both located outside India.

The latest circular comes after field formations highlighted that foreign money transfer service operators conducting remittances to beneficiaries in India had appointed Indian Banks and financial entities as their agents in India. 

Circular No. 180/06/2014 – ST
F. No 354/105/2012-TRU (Pt.)
Government of India, Ministry of Finance, Department of Revenue
Central Board of Excise and Customs, Tax Research Unit
                                                                                                  Room No 153, North Block, New Delhi
                                                                                                  Dated 14th October, 2014

To
Chief Commissioner of Customs and Central Excise (All)
Chief Commissioner of Central Excise & Service Tax (All)
Director General of Service Tax
Director General of Central Excise Intelligence
Director General of Audit
Commissioner of Customs and Central Excise (All)
Commissioner of Central Excise and Service Tax (All)
Commissioner of Service Tax (All)
Madam/Sir,
Subject: -  Levy of service tax on activities involved in relation to inward remittances from abroad to beneficiaries in India through MTSOs- reg.
 
            Vide circular No. 163/14/2012–ST, dated 10th July, 2012, on the issue of  levy of service tax on the activities involved in the inward remittance it was clarified that there is no service tax per se on the  foreign exchange remitted  to India from outside for the reason that money does not constitute a service and that conversion charges or fee levied for sending such money would also not be liable to service tax as the person sending money and the company conducting the remittance  are both located outside India. It was also clarified that the Indian bank or financial institution who provides service to the foreign bank or any other entity is not liable to service tax as the place of provision of service shall be the location of the recipient of service. This clarification covers the scenario where the Indian bank or financial institution provides services on principal to principal basis to the foreign bank/entity, on its own account, and thus the service is covered by the general rule, i.e. rule 3 of the Place of Provision of Service Rules, 2012.

2.         However, subsequently, it had been brought to the notice of the Board that the foreign money transfer service operator (MTSO), conducting remittances to beneficiaries in India, have appointed Indian Banks/financial entities as their agents in India who provide agency /representation service to such MTSO for furtherance of their service to a beneficiary in India. The agents are paid a commission or fee by the MTSO for their services. The entire sequence of transactions in remittances of money from overseas through the MTSO route is as under:

Step 1: Remitter located outside India (say ‘A’) approaches a Money Transfer Service Operator (MTSO)/bank (say B) located outside India for remitting the money to a beneficiary in India; ‘B’ charges a fee from ‘A’.

Step 2:  ‘B’ avails the services of an Indian entity (agent) (say ‘C’) for delivery of money to the ultimate recipient of money in India (say ‘E’);  ‘C’ is paid a commission/fee by ‘B’.

Step 3: ‘C’ may avail service of a sub-agent (D). ‘D’ charges fee/commission from ‘C’.

Step 4: ‘C’ or ‘D’, as the case may be, delivers the money to ‘E’ and may charge a fee from ‘E’.

 3.         Clarifications have been sought as to whether such agents (referred in Step 2 above) would fall in the category of intermediary, and if so, whether service tax would be leviable on the commission/fee amount charged by such agents. Clarifications have also been sought as to whether the services provided by sub agent (referred in step 3 & 4 above) are leviable to service tax and on certain other related issues.

4.         The issues discussed above have been examined and it is clarified as follows,-

1
Whether service tax is payable on remittance received in India from abroad?
 No service tax is payable per se on the amount of foreign currency remitted to India from overseas. As the remittance comprises money, it does not in itself constitute any service in terms of the definition of ‘service’ as contained in clause (44) of section 65B of the Finance Act 1994.
2
Whether the service of an agent or the representation service provided by an Indian entity/ bank to a foreign money transfer service operator (MTSO) in relation to money transfer falls in the category of intermediary service?  

Yes. The Indian bank or other entity acting as an agent to MTSO in relation to money transfer, facilitates in the delivery of the remittance to the beneficiary in India. In performing this service, the Indian Bank/entity facilitates the provision of Money transfer Service by the MTSO to a beneficiary in India.  For their service, agent receives commission or fee. Hence, the agent falls in the category of intermediary as defined in rule 2(f) of the Place of Provision of Service Rules, 2012.
3  
Whether service tax is leviable on the service provided, as mentioned in point 2 above, by an intermediary/agent located in India (in taxable territory) to MTSOs located outside India?
   Service provided by an intermediary is covered by rule 9 (c) of the Place of Provision of Service Rules, 2012. As per this rule, the place of provision of service is the location of service provider. Hence, service provided by an agent, located in India (in taxable territory), to MTSO is liable to service tax.

The value of intermediary service provided by the agent to MTSO is the commission or fee or any similar amount, by whatever name called, received by it from MTSO and service tax is payable on such commission or fee.
4.
 Whether service tax would apply on the amount charged separately, if any, by the Indian bank/entity/agent/sub-agent from the person who receives remittance in the taxable territory, for the service provided by such Indian bank/entity/agent/sub-agent
    Yes. As the service is provided by Indian bank/entity/agent/sub-agent to a person located in taxable territory, the Place of Provision is in the taxable territory. Therefore, service tax is payable on amount charged separately, if any.
5.
 Whether service tax would apply on the services provided by way of currency conversion by a bank /entity located in India (in the taxable territory) to the recipient of remittance in India?
 
Any activity of money changing comprises an independent taxable activity. Therefore, service tax applies on currency conversion in such cases in terms of the Service Tax (Determination of Value) Rules. Service provider has an option to pay service tax at prescribed rates in terms of Rule 6(7B) of the Service Tax Rules 1994.
6.
  Whether services provided by sub-agents to such Indian Bank/entity located in the taxable territory in relation to money transfer is leviable to service tax?
  Sub-agents also fall in the category of intermediary. Therefore, service tax is payable on commission received by sub-agents from Indian bank/entity.

 5.         Accordingly, Circular No. 163/14/2012-ST, dated 10.7.2012 stands superceded.

6.         Trade Notice/Public Notice may be issued accordingly.

 7.        Please acknowledge the receipt of this circular. Hindi version to follow.


Yours sincerely,
                                                                                                (Dr. Abhishek Chandra Gupta)

Technical Officer, TRU

Tel: 011-2309 2037

Short-term UAE visit visa via smartphone

The Ministry of Interior (MoI) has launched three new procedural services via smartphones, which include issuance of short-term visit visas (for 30 days), renewal of citizens’ passports, and issuance of Certificates of Good Conduct (Criminal Status Certificates).

The new services are launched under the slogan 'One Application... Multiple Services' and embody the UAE Smart Government initiative.

Major-General Dr Ahmed Nasser Al Raisi, Head of the e-Services and Smart Applications Team at the MoI, explained that the new short-term visa issuance service saves time for citizens and residents alike, and enables individuals to apply for a 30-day visa through their smartphones, without the hassle of visiting the General Directorate of Residency and Foreign Affairs at the Naturalisation Residency and Port Sector.

Once the visa is issued, it will be delivered to the applicants via accredited entities designated by the MoI.

He also noted that the Civil Defense informatics services provide individuals and institutions with the necessary information about compliance certificates, as well as executive approvals for architectural, gas, and decoration.

More new services

Maj-Gen Dr Al Raisi announced that the MoI is planning to launch a new bundle of services for Traffic, Naturalisation, Residency, and Civil Defense sectors; as well as other services in the upcoming period via the UAE - MoI smartphones apps.

“The MoI has already initiated the necessary executive procedures to expand these services and make them accessible to all citizens and residents,” he said.

Maj-Gen Dr Al Raisi said, “A Smart Application Centre was established at the Ministry of Interior. It is operated by a highly qualified team of Emirati citizens, to handle all electronic procedures pertaining to these services, and respond to customers’ inquiries via the call center on 8005000.”

He also noted that to date 205,000 individuals are using the applications that the MoI has launched early this year, with an average 54,000 uses per day. While the number of subscribers via the Emirates ID card amounts to 62,000 users.

MoI platform supports Apple, Android, BlackBerry and Windows compatible smartphones.

It provides an electronic link with a number of partners in the UAE, car inspection and insurance companies; as well as an integrated comprehensive link to the ministry’s website, through the unified login mechanism (username and password) to obtain services from any channel of electronic communication.

Users can register once using the single sign-in feature on the website or through smartphones, and gain access to all of the MoI’s services.