KERALA

A move that would affect investor confidence

ABU DHABI: Non-Resident Indians (NRIs) in the United Arab Emirates (UAE) and other Gulf states have over the past few weeks voiced their concern in the local media on the Union Budget proposal to slap tax on interests earned on NRE (non-resident external) deposits.

Bankers, leading businessmen and representatives of community associations in the Gulf have highlighted the negative consequences of the move on investor confidence, on low and middle income expatriate remittances and the inevitable erosion of funds funnelled over the years into Indian banks by NRIs.

The rumbles of protest gathered momentum last week with a high-level expatriate Indian delegation spearheaded by the Indian Business and Professional Council (IBPC), Sharjah, planning to visit New Delhi early August to meet the Union Minister of State for Non-Resident Affairs, Jagdish Tytler, and the Finance Secretary.

Sudesh Agarwal, president of IBPC, Sharjah, which has a memorandum of understanding with the Associated Chambers of Commerce and Industry of India (Assocham), is coordinating the high-level meetings in a bid to make a strong representation seeking reintroduction of tax exemption on interests earned on NRE deposits. The council is planning to rope in representatives from many other leading organisations in the UAE and other Gulf states to join the delegation.

Uniform opinion

``We are keen to stress the fact that virtually all NRIs in the Gulf are of the uniform opinion that not much groundwork has been done before this decision was taken by the Indian Government. We have made an assessment of the cost effectiveness of the tax and the potential gains for the Government. The projected tax collection is only in the region of Rs.150 crores to Rs.200 crores a year, which is not such a big amount to justify the burden imposed on individual NRI investors,'' he said. There are several other ways by which the Government could raise such sums from NRIs, he pointed out. Moreover, Gulf NRIs should not be equated with NRIs in the U.S. and elsewhere, as the former invariably return to India to take up permanent residence and remit most of their earnings back home, he said.

Spokesmen for NRI associations in the UAE point out that majority of the Gulf expatriates are middle and low income earners, for whom the hassles of filing Income Tax return forms could pose problems that they may choose to avoid.

According to Ravi Menon, president of the Abu Dhabi Malayali Samajam, the worst impact of the tax would be the re-emergence of the hawala mode of money transfers, which had in recent years taken a backseat in transactions from the Gulf owing to the near parity in gold prices and swift means of transmitting money through official exchange houses. Mr. Menon regretted that Gulf NRIs, despite their huge contribution to India's forex reserves, have to date, not succeeded in pressing their case on several serious issues concerning them with the Indian authorities.

The Pravasi Bharatiya Charitable Trust in the UAE has also sent a letter to the Indian Government stating that the tax would drive NRIs away from bank deposits and would have an adverse impact on the savings pattern of low income NRIs. K.V. Shamsudheen, chairman, said the Trust was conducting workshops in some of the Gulf states to educate Indian workers on the impact of the tax and on alternative investment options.

Meanwhile, bankers have voiced concern on the possible drop in FCNR (foreign currency non-resident) and NRE deposits in the short and mid-term, which could affect banks in States like Kerala in particular, where NRI remittances account for a sizeable chunk of their operations. Total NRI money transfers from the Gulf region alone last year was to the tune of $12 billion.

New regulation

A positive development that should be taken serious note of by Indian labour seeking work in the UAE is the new regulation for companies recruiting expatriate labour. It is scheduled to come into effect in October this year. Firms in the UAE applying for work permits are mandated to furnish copies to the UAE authorities of the job offers they sign with the expatriate recruits to ensure that they are similar to the labour contracts. The decision follows several cases of exploitation by firms who lure workers from abroad with initial attractive offers and later renege on their promises, forcing the hapless workers to sign contracts that do not include many of the privileges mentioned in the initial job offer. The regulation will to a great extent safeguard workers' interests against exploitation by employers, particularly with regard to salary specifications and other basic amenities.

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