Non Resident Keralites (NRKs) remittances are the backbone of the Kerala’s economy and constitute 35% of Kerala’s Gross Domestic Product (GDP). However, if the media reports are to be believed, Kerala government is about to raise service tax on remittances, even as the remittance costs will also rise after the imposition of Goods & Services Tax, expected to reach 20% by 2016.
In 2014, the Central Board of Excise and Customs (CBEC) have imposed a 12.36% service tax on remittances that several found unfair.
During the period Sept 2014 to June 2015, the NRKs have already paid an extra Rs. 172 crores to the state government as service tax.
Therefore the imposition of service tax on incoming remittances runs against the state government's own stated view to bring down the remittance cost. It may be recalled that during the previous UPA tenure, the chief ministers of Kerala, Punjab, Tamil Nadu and Andhra Pradesh were taking up the issue of service tax on remittances with the then central government on the repeated basis, as four states are among the largest beneficiaries of such foreign currency transfer from expatriate community employed in the Gulf countries, Canada and the US.