Levy Millstone Hangs Around Fx Brokers & #8217; Necks

Tough stand taken by a couple of public sector banks may force the foreign exchange broking fraternity to shoulder the burden of the new eight per cent service tax, which, in turn, could adversely impact their bottom lines.

The banks have made it clear that they while they are game for arriving at a negotiated, per-transaction brokerage charge, they are not ready to pick up the tab on service tax, which the forex brokers are subject to.

The 20 traditional forex brokers, through whom 50 per cent of the deals in the forex market are put through, could see their earnings shaved by Rs 80 to Rs 920 per $1 million of outright (spot) transaction put through as against the extant Rs 1,000 (inclusive of the service tax) if the brokers are forced to foot the service tax charges.

 

The Union Budget recently hiked the service tax charge to eight per cent from five per cent. The banks, which have expressed reservations about paying service tax, are Union Bank of India and Indian Overseas Bank.