Mutual funds industry opposes duty on asset management companies

Says it is unfair that sector is being taxed at both provincial and federal levels.

KARACHI:

Given its reputation as a pro-business political party, many expected the Pakistan Muslim League-Nawaz (PML-N) would try and broaden the tax net instead of forcing existing taxpayers to cough up more money to run an outsized government machinery.

However, the imposition of a federal excise duty (FED) at the rate of 16% on asset management companies (AMCs), despite the fact that they are already subject to a provincial sales tax of 16%, suggests otherwise. After all, the rate of savings and investments in the country is unlikely to go up if retail mutual funds investors are forced to bear a total levy of 32%, in addition to capital gains taxes and taxes on dividends.

“Asking AMCs to pay the FED as well as the provincial sales tax to the Federal Board of Revenue is basically double taxation,” Mutual Funds Association of Pakistan (MUFAP) CEO Mashmooma Zehra Majeed said while speaking to The Express Tribune here on Friday.

She said heavily taxing the mutual funds industry, which has a small investor base anyway, will be counterproductive to the government’s objective of increasing the rate of savings as a percentage of the country’s gross domestic product.



“I appeal to the government to withdraw the FED, as taxing asset management firms at both provincial and federal levels seems unfair,” she said; adding that even the rate of provincial sales tax is very high compared to international standards. “The provincial sales tax on mutual funds industry should be reduced from 16% to around 6%,” she recommended.

Neither the FED nor the provincial sales tax was applicable on AMCs before 2011. However, provinces started collecting sales tax on services, including those provided by AMCs, around two years ago, which is now being followed by the imposition of FED through the Finance Act 2013.

On June 18, Securities and Exchange Commission Acting Chairman wrote a letter to Finance Division Secretary Waqar Masood Khan, requesting him to withdraw the FED after MUFAP formally shared its views on the proposed levy with the apex regulator of the country’s corporate sector.

According to Amjad Waheed, CEO of NAFA, an asset management company affiliated with the National Bank of Pakistan, the imposition of FED is going to be ‘disastrous’ for the mutual funds industry, as the same will not be imposed on other investment avenues such as banks’ savings accounts, term deposits and National Savings Schemes (NSS).

“There should be a level playing field for everyone. The present taxation policy requires mutual funds to pay provincial sales tax as well as FED, while there is no FED on NSS or term deposits,” Waheed told The Express Tribune.

Published in The Express Tribune, June 29^th, 2013.