|
Dear fellow IFA Friends,
As per the suggestion of the Hon. Minister of State for Finance, Jayant Sinha, we need to all come together under one platform and make one common representation for the Ministry to take our issues under consideration. This was clearly stated by him in an open forum on a question regarding Service Tax payable by Distributors.
For this to happen, we need to each get across to as many IFAs across the country to either join FIFA or any of the local or IFA Associations which can then come together with FIFA in making a united recommendation to the Finance Ministry as one voice. This is our chance to be finally heard. He was very clear that he will not entertain any views individually of an IFA, Company or an Association but is ready to hear us on an Industry level representation only.
A United Forum has already been established by FIFA with a few other Associations. We now need all other Associations on board at the earliest so that we do not miss out on this opportunity. This is our chance for all of us to come together as one voice.
Sincerely,
Yogesh Sharma
Editorial comment
Hearing Mr. Jayant Sinha speak at the forum Yogesh refers to, I got a clear impression that he is looking for a crisp, well-reasoned and collective argument on the distributors' stand on service tax. Here are some pointers that you might want to use in drafting your petition. These points intentionally cover only one issue - service tax. It's my experience that best results are obtained when attention is focused sharply on one issue and workable solutions are presented for that issue, rather than putting out a laundry list of multiple issues, none of which may finally get addressed.
Current situation
An unintended consequence of service tax introduction on mutual fund commissions this year has been that the service providers are effectively bearing this tax and are not being allowed to pass this on to the consumer of their service. As a consequence, mutual fund distributors are paying 30% income tax on net income as well as 14% service tax on their gross income. This service tax significantly reduces net income of distibutors as it erodes margin sizeably. It is settled law that service tax is an indirect tax, which has to be borne by the user of the service. The honourable Delhi High Court has clearly observed, " as explained by the Supreme Court, if the overall objective of the levy were to be taken into consideration, it is the service which is taxed, and the levy is an indirect one, which necessarily means that the user has to bear it." http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=12120) The market regulator (SEBI) is not permitting service tax on distribution commissions to be passed on to the consumer of their services - the investors. Total expenses that can be levied on mutual fund schemes are capped by regulation, and although SEBI has specifically allowed service tax on investment management fees charged by asset management companies to be levied on schemes (ie on investors) over and above the expense cap, it is not permitting similar treatment for service tax on distribution commissions. Since this service tax is collected for administrative convenience through the reverse charge mechanism, over 80% of registered mutual fund distributors, who earn less than Rs.10 lakhs per annum as commissions, and who would otherwise be exempt from service tax, are also bearing this 14% tax on their income, with no ability to pass it on to the consumer. Consumers bear service tax on every other form of financial service including on payment of insurance premia and even bank charges for ATM usage. They bear service tax on management expenses in mutual funds. The only service where the service provider is not being allowed to recover service tax on services rendered is mutual fund distribution commissions.
Remedial measure requested
Ministry of Finance should ask SEBI to adopt a uniform policy of permitting all statutory taxes levied by the Government to be recovered in the manner envisaged in these statutes. Service tax is an indirect tax, and like all indirect taxes, the provider of services is entitled to recover this from the recipient of the service. Not allowing this to happen for mutual fund distribution commissions is inconsistent and discriminatory in nature.
What is sought is not a cancellation of the service tax - only a fair and just mechanism for recovering this tax from the beneficiary of the service. This appeal is therefore revenue neutral from the Government's point of view, and at the same time, will help correct an unintended anomaly that has crept in due to incorrect implementation of the levy.
Share this article
|
Advisor Speak