AMFI has asked fund houses not to share the service tax burden with distributors, said three senior officials familiar with the development.
The industry body has clarified that service tax is a part of AMFI best practices circular and its members will have to adhere to its guidelines with effect from January 1. This decision was taken at the AMFI board meeting held in Mumbai recently.
Sources said that SEBI will act if AMCs fail to comply with AMFI best practices circular. SEBI is said to have told AMFI that it may consider implementing some of the recommendations made by the Sumit Bose committee if AMCs don’t budge.
Last month, DSP BlackRock MF had reportedly come out in support of distributors to help them tide over the service tax burden imposed by the Budget 2015. With effect from November 1, DSP BlackRock MF has decided to bear 50% of the service tax burden.
Under this arrangement, DSP BlackRock MF continued to pay trail commission from the distributable TER. However, instead of deducting the entire 14% of gross commission payout as service tax, it is said to have been paying 50% of this tax from its own pocket. As a result, the overall trail commission goes up to some extent.
A few months back, AMFI had sent a letter to AMCs stating that Central Board of Excise & Customs (CBEC) officials have told AMFI that they are not concerned as to who bears service tax so long as they collect service tax.
In 2012, the government had put the services of mutual fund agents under the negative list which exempted them from paying service tax. Till 2012, AMCs were deducting service tax and paying it to the government. In Budget 2015, this exemption was withdrawn.
Representatives from Financial Intermediaries Association of India (FIAI) and United Forum of IFA met Jayant Sinha, Minister of State for Finance yesterday to discuss the service tax issue.
