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Our Bureau

Mumbai , Feb. 28

Registrars, share transfer agents and bankers to equity issues have now been brought under the service tax net.

The Finance Bill 2006-07 proposes to levy service tax of 12 per cent on these services.

While this is not expected to significantly affect corporates that are planning to raise money through the equity markets, there could be a marginal impact on investors of mutual funds.

According to Mr C. Parthasarathy, Chairman and Managing Director, Karvy, the cost of making public issues will slightly increase, but it will not be a major dent on corporate finance for companies going public.

However, the service tax of 12 per cent on share transfer agents could spell bad news for asset management companies (AMCs).

AMCs could choose to pass on the incidence of this tax to investors, as part of the expense ratio.

If not, the service tax and the increased securities transaction tax, would squeeze the profit margins of AMCs, said the head of a mutual fund house.

With mutual funds, especially those that have an equity component, posting robust returns, this additional service tax is not expected to affect investor sentiment.

Nonetheless, industry experts caution investors to be aware of the possibility of this hidden tax.

The current fiscal has seen several companies going public and market experts predict that with continued bullishness in the Indian equity markets, the bourses would witness several more medium and high profile issues in the next few months.

The incidence of service tax on bankers to an issue and registrars and share transfer agents at this juncture would prove to be a good source of revenue for the Government, an investment banker said.

The move to tax these services were expected and not an unpleasant surprise, he added.

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