COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Kerala to oppose income tax on NRI savings

D Jose in Thiruvananthapuram

The reported disclosure by Kozhikode's member of Parliament, Shankaran, regarding a move by the Union government to introduce income tax for non-resident Indians, has plunged NRI and financial circles in Kerala into confusion.

Many refused to believe the reports about Shankaran’s statement made at a convention of the Abu Dhabi NRI Welfare Committee held at Kozhikode on Monday. They think the MP’s statement may not be correct and feel the Union government may not enact such a move at this juncture when the country is reeling under the impact of sanctions following the nuclear tests.

Shankaran, a new face in the Lok Sabha, was reported as saying that all the MPs from the state had an informal meeting to consider the move and had agreed to resist it.

The MP’s disclosure drew instant reaction from state Health Minister A C Shanmughadas, who inaugurated the conference. The minister said any move to impose tax on the savings of the NRIs will be resisted strongly by the government. He said the remittances from NRIs in the Gulf countries were the backbone of Kerala economy and any attempt to destroy it will be opposed tooth and nail.

The minister said that Keralites working in the Gulf were contributing immensely to the state's development. The Kerala government had started a separate department for the NRIs in recognition to their contribution to the state and the country.

He recalled that Kerala was the only state in the country, which has permitted its employees to avail leave up to 20 years for working abroad.

Financial experts here have expressed dismay over the statement. Chartered accountant A Neelakantan said he was unaware of any such move and added that it cannot be true.

Neelakantan told Rediff on the NeT that there could be some misunderstanding about the matter. The reports about the move to levy income tax has come at a time when NRI circles in the state are already confused about the finance minister’s proposal in the 1998-99 Budget making filing returns compulsory for all those who own a telephone, car and house.

A large number of queries, Neelakantan said, have been pouring in from NRIs and their kin about the proposal. The chartered accountant said that many NRIs were confused whether they have to pay the income tax if they filed the returns.

He said the Government of India has signed double tax avoidance treaties with several countries exempting NRIs from even capital gains. Such a treaty is in force between the governments of India and United Arab Emirates, he added.

Any income tax on the savings of NRIs can seriously hurt thousands in Kerala, which has a large number of people working in the Middle East. Most of the people in the Gulf are poor labourers, who have to support their families solely with the meagre wages they earn.

In fact, the Kerala economy itself is sustained by the remittances received from the NRIs. The agricultural and industrial sectors of the state economy are more or less stagnant. The actual remittances received by the state is not known. However, experts estimate the total remittance to be between Rs 30 billion to Rs 60 billion a year.

The planners feel that imposition of any tax on the savings of NRIs will affect the flow of remittances into the state and the country. The planners have been attaching much importance to the remittance received in Kerala as it has saved the economy from collapsing in the face of serious recession in the productive sectors. In fact, a substantial portion of the remittance has been going towards development lately. The investment by the NRIs has seen a marked shift from real estate to other productive sectors. A large number of NRIs are now coming forward to invest their savings in productive fields.

The banks in the state have been a major beneficiary of the remittances. Roughly 30 to 50 per cent of the deposits of almost all the banks in the state are NRI remittances.

The NRIs had made substantial contribution to the Resurgent India Bonds. State Bank of Travancore Managing Director Vepa Kamesham said his bank alone had mobilised $ 3.2 billion till August 22. Kamesham said the contribution by the Gulf Malayalees stood first in terms of numbers. Their contribution to the bonds was $ 17 million, he added.