The Hindu Business Line : Small distributors up the ante on service tax

THE names Kailas Zaparde, Suresh Kulkarni or Kaajal Thadani may not be instantly recognised by all and sundry, but they now form a part of what seems to be the first organised initiative by distributors of mutual funds against service tax. Dozens of them are said to have come together to take up the issue, some of them passionately directing their pleas towards AMFI, the industry body representing fund houses.

Serving as backdrop is the 10.2 per cent service tax imposed on commissions, a rate that is felt to be not too high for big intermediaries operating in metros but steep for the smaller players based in other centres and catering to a relatively limited number of clients.

At the heart of the move is an organised campaign, chiefly through a forum provided to distributors by Computer Age Management Services (CAMS), the Chennai-based registrar. Protestations have taken various shapes, ranging from criticism aimed at their own tribe to the references to strong action taken by the transporter community.

Here are a couple of samples, taken at random from the many that have come in.

A note posted by Mr S.K. Kulkarni, a Pune-based financial advisor suggests that "90 per cent of the MF agents are not fighting for their rights"; he also urges small distributors to work only for those funds that are helping them in the matter.

Another message from Mr H.K. Kandhar strongly advises the fund community to learn from transporters, especially from leaders of transport unions who had even courted arrest for their cause. Predictably, some of the messages have also sought to take the issue straight to AMFI.

One of them has also underlined the need to form an agents' union to tackle the issue, arguing that margins generated by small intermediaries are not enough to pay the tax.

Distributors have also pointed out that they will have to sign up with the tax department and engage accountants for assessments. This will further deflate their profitability. A solution, however, can be obtained if MFs deduct service tax at source.

The most poignant words have perhaps come from Mr Wasim Abdul Shariff, who simply states that the new levy will ruin the majority of small operators. "Banks and big brokers will get set-off of service tax against their other activities. But small agents, whose only business is mutual funds, will be out of business in the near future".

Letter sets tone: A single note, ostensibly written on behalf of agents of UTI and other MFs, is common to many of the messages sent through the CAMS forum. The note says that if the tax is deducted at source (that is, if it has to be deducted at all in the first place), the government will have to monitor only the 35 or so fund houses.

It also discusses the background and the latest status of the issue as well as the "loss" that the government is incurring in this context. Here are its operative parts.

* The MF industry has over 65,000 direct agents and 2,00,000 sub-brokers, all of whom must register with the tax authorities and file regular returns.

* Recovering service tax from so many, a section of whom operate from home, will be an unviable and uneconomical job for the government.

* Tax is also imposed on sub-brokers, which is akin to double taxation, since the entire commission would have already borne its incidence before the payment of the commission to distributors.

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