Indian labourers may be hit hardest by new tax laws

A proposed taxation system for non-resident Indians leaves expatriates liable for more taxes.

India’s proposed new taxation system has stirred worries among its expatriates and experts say labourers could be hit hardest.

The system would affect the lives of millions of Indians who live in the Gulf, experts said. Non-resident Indians (NRIs) would be liable for income tax if they spend more than 60 days a year in India, or 365 days in the preceding four years.

That is a sharp reduction from the current limit of 182 days. Those who are liable for taxes would under the Direct Tax Code Bill 2010 pay at a higher rate. The bill raises the NRI tax liability from the 12.5 per cent rate set by an earlier agreement between the UAE and India to 20 per cent, regardless of income.

The bill is being debated in parliament and will go into effect next year if it passes.

K?V Shamsudheen, the chairman of the Pravasi Bandhu Welfare Trust, which offers free financial advice to low-income workers, said that unlike Indians who lived in India, whose incomes were taxed progressively from 10 to 30 per cent, NRIs were taxed at a flat rate.

“It will most adversely affect low-income workers,” he said. “It is a punishment to them.”

Mr Shamsudheen sent a detailed list of suggestions and problems to the Indian president, Pratibha Patil, during her state visit to the UAE in November.  He also voiced concern about harassment from tax authorities, who could at their discretion detain NRIs during their travels over tax returns.

"Thousands of NRIs in the Gulf are low-income Indians who do not have their families staying with them. That makes it necessary for them to spend more time in India to meet family obligations in the event of sickness, children's education, etc," Mr Shamsudheen wrote in his report.

Supporters of the bill say it will clamp down on money laundering and discourage moneyed Indians, especially Bollywood stars, from spending time abroad to avoid taxes.

“I fully agree they must [stop money laundering], but [it should] not penalise the small-income workers,” Mr Shamsudheen said.

“They must find other ways to stop it.”

At the ninth annual Pravasi Bharatiya Divas, India’s convention to connect with its 27-million strong diaspora held in New Delhi earlier this month, prominent members of the Indian community in the UAE appealed for the bill to be amended.

Yusuf Ali, the managing director of the EMKE Group, which runs the Lulu supermarket chain in the Gulf region, proposed regulations to assist low-paid workers.

“Many people take two to three months’ long vacation after working for two to three years. The new law will be a big problem for them,” said Mr Ali, who is also a member of the prime minister’s global advisory council.

He said the more than five million NRIs in the Gulf region were an important source of foreign remittance to India and should be given “fair treatment”.

Ram Buxani, the president of Dubai-based International Traders (ME), which imports and distributes textiles and electronics, also spoke at the gathering and said he discussed the issue with the Indian finance minister, Pranab Mukherjee.

Mr Buxani said he asked the minister to consider adding to the bill a special stipulation for Gulf NRIs.

“The Gulf should be separate,” Mr Buxani said. “Unlike our western counterparts, we do not have social security or other grants. NRIs here have to travel frequently to India to care for their children and relatives, and even their wives, who live away from them.”

He added that Mr Mukherjee assured him those issues would be considered before the bill becomes law.

“You cannot tell it once or twice to them,” said Mr Buxani. “This sort of matter requires constant nagging.”

V?T?V Damodaran, who works for an auditing firm in Abu Dhabi, said most expatriates did not yet understand the intricacies of the proposed tax law.

"People don't yet know to what extent it will affect them," Mr Damodaran said. "They will protest once they find out. They will be dead against it. This is simply bothering the NRIs. We send our remittances, but for that there is no consideration. This is an added headache and obligation for us."

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