We are deeply concerned about the changes proposed in the Budget 2015 regarding withdrawal of service tax exemption on:
(a) Services provided by a mutual fund agent to a mutual fund or assets management company;
(b) Distributor to a mutual fund or AMC;
Further, service tax on services provided by a mutual fund agent or distributor to a mutual fund or asset management company would now be levied on a reverse charge basis. We believe this will lead to immense hardship and unfair increase in taxations of individual if they cannot pass on the burden of service tax to the user of services.
Service tax is pass through in nature. It is to be borne by the recipient of the service. However, the distributor community is apprehensive that the service tax may actually have to be borne by the mutual fund agents who are the service providers.
In the reverse charge mechanism, the effective service tax rate works outs to 16.28%. If the mutual fund distributors are to absorb the service tax on mutual fund commission, then the effective tax rate (for the highest tax slab) would be 45.26%. Since the service tax is being charged on reverse charge mechanism, no credit for service tax on input is available to the mutual fund agents/ distributors.
On behalf of the distributor community we humbly request the following:
1) To use your good offices and approach SEBI to request an increase in the maximum limit of TER as prescribed in regulation 52 of The SEBI (MF) Regulations so as to allow service tax on commission paid to mutual fund agents/ distributors to be charged to the scheme.
2) To amend the manner of accounting as specified in para D of the representation attached to make it revenue neutral.
3) In the alternative: service tax on all commission debited to the books of accounts of the AMC should not be deducted from the commission payable to the distributor, since the service tax paid on such commission paid to the distributor can be claimed as a set off against the service tax payable on AMC fees charged to the scheme.
In case of debt schemes, in most cases the expenses charged to the scheme are far lower than the maximum permissible TER. Even in the case of some equity based schemes the expenses charged to the scheme are lower than the maximum permissible TER. In all such cases, the service tax payable on distributor commission should be charged to the scheme and should not be deducted from the commission payable to the distributor.
