SERVICE TAX ON FOREX DEALS WORRIES BANKERS

Bankers are worried that they will soon have to pay service tax on all foreign exchange transactions, which they say would significantly push up the transaction costs. As per a new notification, service tax will be applicable to all foreign exchange transactions with effect from May 16. This follows an amendment made in the Service Tax rules in this year’s Union Budget.The tax will be levied at the rate of 0.25 per cent of the gross amount of the currency exchanged.According to bankers, the levy works out to 10 paise per dollar at the exchange rate Rs 40 per dollar. For every $100, buy or sell, bankers will have to pay Rs 10 as tax. Crippling effect Bankers say that tax authorities have clarified that the tax will also be applicable to inter-bank transactions. Given the huge volume of inter-bank forex transactions, the levy will have a crippling effect on banks as they deal in thin margins. The new levy will be a huge burden on exporters and importers, as banks will pass on the extra cost to their customers, said a banking source. – www.hindubusinessline.com