MFs tax issues need to wait till Budget ’13

* After a 2nd round of meetings with FinMin and assurance by PM,MF industry asked to wait

Written by ENS Economic Bureau | New Delhi | Published: July 13, 2012 1:07 am

The mutual fund industry will have to wait another year before its tax related woes can be addressed by the government.

“We took stock of basic concerns of the mutual fund industry. The taxation issues were discussed and we told them it can be taken only in the next Budget in the Finance Bill,” a senior finance ministry official said after the second round of meeting with fund managers.

The mutual fund industry has been pitching for passing on the service tax bill to consumers on purchase of new schemes. The tax liability has decreased their total expense ratio. The expense ratio is mainly administrative expenditure that is presently at 2.20 per cent,of which 2 per cent is administrative expense and 0.20 per cent is the exit load.

The issue of entry load or commission paid to brokers did not feature in the meetings. Representatives from the Association of Mutual Funds (AMFI) and major fund houses have sought permission to float pension schemes with provision of tax relief at par with other life insurance policies.

The finance ministry official said the meeting also focused on ‘some changes’ in the total expense ratio (TER) to incentivise the sector and other sops to increase penetration of MF in tier-I and II towns. He said the fungibilty issues and additional incentive for investments in systematic investment plans (SIPs) of MFs were also discussed.

The mutual fund industry has demanded an increase in the TER,which is mainly administrative expenditure,to 2.25 per cent from 2.2 per cent.

As conveyed by Prime Minister Manmohan Singh,the concerns of the mutual fund industry are likely to be addressed soon as a slew of meetings on the issue are scheduled for this month.

Thursday’s meeting with finance ministry officials will be followed by AMFI board meeting on July 16. A day later,market regulator Sebi’s mutual fund advisory committee will meet on July 17. Finance ministry officials have also indicated that the Sebi board will meet by the month-end,when it could possibly clear an incentive package for the industry.

According to Sebi data,equity funds lost 4.86 lakh folios in April and May 2012. While there were 3.76 crore folios as on March 2012,which fell to 3.71 crore in May 2012,equity assets also fell 6 per cent from Rs 1.82 lakh crore to Rs 1.70 lakh crore during this period.

For the asking

The mutual fund industry has been pitching for passing on the service tax bill to consumers on purchase of new schemes

The issue of entry load or commission paid to brokers did not feature in the meetings

Amfi and major fund houses have sought permission to float pension schemes with provision of tax relief at par with other life insurance policies

The finance ministry official said the meeting also focused on ‘some changes’ in the total expense ratio

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