The Hindu Business Line : Service tax dispute: Distributors can smile as AMCs `agree' for TDS

ASSET management companies (AMCs) and distributors are agreeing to meet halfway in the service tax dispute. A petition signed by leading mutual fund distributors seeking that the service tax be deducted at source by AMCs is being submitted to the Finance Ministry later this week.

Mutual Fund Advisors Welfare Association (MAWA), a Kolkata-based initiative of MF distributors, has distributed a petition to the distributor community saying that a tax deducted at source (TDS) approach will help "lift the clouds of confusion surrounding the service tax and will create a level playing field for all distributors large and small".

MAWA had earlier approached the Ministry of Finance to solve this issue and says that the Ministry has expressed its openness in implementing the TDS model promptly, in case there is a joint representation from mutual fund advisors and AMCs.

Mutual fund distributors are reluctant to register with the excise department and handle the necessary paper work. The TDS model is expected to help them from worrying about record keeping, documentation and possible raids from the excise department.

The petition is addressed to the Association of Mutual Funds in India (AMFI) and MAWA expects the former to present the same to the Ministry.

Currently, distributors are liable to pay the `service tax on distribution of mutual funds'. While there was a court case and ambiguity about whether mutual fund distributors qualified under the definition of service liable to pay this tax, it has been clarified in this year's budget.

AMFI, on its part, has constituted a `service tax committee' and is considering the proposal. "This is a win-win situation. The Government will have ease of collection if service tax is collected from the 30-odd AMCs rather than thousands of distributors. The distribution community also will have to take on the hassle of physical payment of this tax, maintenance of records etc.," said a senior industry leader.

Industry sources admit that finally there is consensus in this approach and most AMCs have agreed to the proposal.

"This is a huge improvement from the distributors' earlier refusal to pay the tax. Understandably, most small distributors do not want to handle the paper work related to tax payment. We would be able to manage this well," said the head of marketing of an AMC.

The impact of the service tax on investors is already visible, with most AMCs having raised the entry loads on funds. The extra load is being paid out to brokers and distributors to compensate them for the incidence of the tax.

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