TAX ON FOREGIN EXCHANGE TRANSACTION

Recently, the Revenue department has sought to levy a tax on the foreign exchange transaction of the bank. The suggestion was met with the huge opposition from the bank as it is going to reduce profitability earned by the bank from the foreign exchange trade.
The tax rate to be imposed as per suggestion is 025% service tax on every transaction of foreign exchange .Currently the bank are charging a flat of Rs 100 on every transaction irrespective of the amount converted in foreign exchange currency .The tax incidence is 12.36% or 0.25% of the turn over if service tax is not imposed .If .25% is imposed then it is going to affect the profitability of the bank as well as exporter convert huge amount of currency on account of daily transaction.
The levy on foreign currency transaction is also known as Tobin tax in other countries .It is slightly different from the tax proposed by India as there are difference in various objective to impose such taxes by the countries that ranger from dissuading speculator from making profit on foreign exchange transaction ,funding of developmental need from such earning. Tobin tax is tax imposed by other countries on financial transaction across the border. The tax on foreign exchange transaction was devised to cushion exchange rate fluctuation. The idea is very simple, at each exchange of a currency into another a small tax would be levied 0.1% of the volume of transaction
However imposition of on foreign currency transaction has meet a lot of opposition and debates from other countries .Opinion are divided between anti-globalizationists who applaud that the Tobin tax could protect countries from spillovers of financial crises and pro-globalizationists who stress that tax would also constrain globalization and dry up world liquidity.

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