Distributor associations are continuing to voice their opinion against the service tax imposed by Budget 2015 even as AMFI has clarified that it is to be borne by distributors. AMFI will discuss the service tax issue with its members in its forthcoming board meeting scheduled on April 20.
Recently, Financial Intermediaries Association of India (FIAI), an association of large distributors has sent a letter to AMFI stating that AMCs should pass on the service tax burden to investors by increasing the TER. FIAI is of the view that the service tax should be borne by investors as they are the ultimate recipients of services. A media report had said that FIAI is considering legal action against AMFI on the issue of service tax. “We have made a representation to AMFI. However, we are not planning any legal action,” clarified a spokesperson of FIAI.
Before increasing the TER, AMCs have to take SEBI’s consent. Some heads of AMCs had met SEBI regarding this issue but the regulator is said to not in favour of hiking the TER, say sources.
When asked about the AMFI stand on this issue, H N Sinor, CEO, AMFI said “The commissions were inclusive of service tax earlier. AMFI can’t do much about it. Distributors have to take up the matter with the government. We will discuss the matter in our next board meeting.”
The sales head of a foreign fund house said “AMCs are unlikely to take the service tax hit on their books. It has to be borne by distributors.”
Service tax is levied on those having income of Rs. 10 lakh and more. According to industry officials, this rule is not applicable for mutual fund distributors. Hence, service tax is deducted even from those distributors who earn less than Rs. 10 lakh per annum as commissions. According to industry estimates, around 1,200 distributors earn more than 10 lakh per annum.
Distributors were exempted from paying service tax in 2012, which was 10.30% then. The Budget 2015 has withdrawn the service tax exemption given to distributors. Also, the service tax has now been increased from 12% to 14% which has come as a blow to distributors. Earlier, AMCs were paying commissions to distributors after deducting service tax.
AMFI had earlier clarified that service tax has to be borne by distributors. Read here.
