Financial Daily from THE HINDU group of publications
Wednesday, Apr 13, 2005
Industry & Economy - Taxation
`Exempt stockbroking franchisees from service tax'
Coimbatore , April 12
WITH nearly 9,000 sub-brokers hawking equity related products being brought under the service tax net, the stock market players dread the paper work they will have to do, which, in their opinion, is not going to bring any additional revenue.
They feel that as had been done in the case of insurance brokers, the Centre should come out with an announcement exempting the franchisees or remisiers engaged by the stockbrokers, from the payment of service tax.
Mr D. Balasundaram, Chairman, Coimbatore Capital Private Ltd (CCPL), which is an NSE Member having a chain of franchisees in the South, told Business Line that the Government in its notification had stated that "services provided by brokers, sub-brokers to investors in connection with sale and purchase of securities listed on recognised stock exchanges would be subjected to service tax".
His company has appointed remisiers in various cities as part of its business and they were paid a portion of the commission earned by the company depending on the brokerage generated by the franchisees/remisiers. Till now, such persons were not within the service tax net but now have been asked to pay service tax.
He pointed out that the stockbrokers were paying service tax on the total brokerage earned by them, which included the share of the brokerage due to the franchisees/remisiers. On this brokerage, CCPL paid 10.2 per cent service tax to the Government.
Now, the Government wanted the franchisees/remisiers also to pay service tax on the commission or brokerage earned by them, which according to him amounted to double taxation since the service tax on their share of brokerage had suffered tax when the main brokers had paid the service tax.
Mr Balasundaram argued that the Government would not be getting any additional income by making the sub-brokers to pay service tax since their income as sub-brokers or remisiers of a main broker was not an additional/independent income but part of the income earned by their main broker on which they pay service tax. The business generated by the sub-brokers was routed through the main brokers.
He said leading corporate broking houses had appointed franchisees across the country, which has helped in the spread of equity culture. Bringing such franchisees under the service tax net would only lead to fragmentation of the income earned by the main stockbrokers and would not mean that additional taxable income has been identified. It would only be a revenue-neutral exercise and would only lead to more paper work for the department.
He said his own remisiers had not paid service tax in the past and this may be the case with other franchisees too. If the Central Excise department wants to collect service tax from the date of notification, it would lead to chaos.
He said during his meeting with central excise officials here, he learnt that in the case of LIC brokers, the Government has decided that LIC would pay the service tax on commission paid to the brokers and the latter need not separately pay the tax.
As the franchisees/remisiers appointed by stockbrokers were doing a similar work, government should exempt them from the purview of service tax, particularly because it would not bring any additional income to the government.
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