Skip to main content

Regulator at receiving end This Watchdog may be Bitten With Service Tax

CBEC says Sebi liable to pay as its services are not exempted from taxation

Foreign portfolio investors, or FPIs, may have gotten off the taxman's hook on the issue of minimum alternate tax, but their regulator isn't going to be as lucky if the tax authorities have their way . The Central Board of Excise & Customs has backed the view of the tax authorities that the Securities & Exchange Board of India is liable to cough up service tax, in what will be seen as an odd spectacle of a regulator being asked to stump up money .

In a clarification to a report put up before it by field officers, the government's apex indirect taxes body has given the go-ahead for a formal investigation in the matter, in the process backing the view that because services provided by the stock market regulator were not specifically exempted from taxation or kept in the negative list, they were liable to be taxed.

Service tax officials will now closely examine Sebi's books to ascertain its total tax liability , which they reckon, based largely on back-of-the-envelope calculations, to be around ` . 500 crore. “The board has clarified that services provided by Sebi were taxable,“ said one government official familiar with the matter.

Sebi provides a range of recurring and non-recurring services, for which it charges a fee. In fiscal year 2014, it had a fee income of Rs 175 crore, up nearly 18% from Rs 148.7 crore it earned in the previous fiscal. Recurring fees includes those levied for registration of intermediaries, sundry regulatory fees and fees from mutual funds while non-recurring ones include those levied on offer documents filed by companies and on foreign funds. A spokesperson for Sebi said: “The matter has been legally examined by Sebi and the legal opinion is that service tax is not applicable to Sebi. Sebi has also represented to service tax authorities accordingly.“

NEGATIVE LIST REGIME

The government had switched to negative list regime for service tax in July 2012, which meant that all services barring those specifically exempted or included in the list were liable for taxation. Service tax is levied at 14%.

Service tax authorities contend that Sebi collects fees on certain transactions and for processing of public offers for equity, corporate debt and mutual funds, and these charges are also based on the value of the transaction and are not a fixed amount as is the case with most other regulators, thereby making the collections eligible for taxation. Legally, these services have neither specifically been exempted nor included in the negative list, making them liable to be taxed.

In its Budget for 2015-16, the government had pruned the negative list to exclude services such as the auction of spectrum and mining rights and leasing of government land and buildings. However, this change in law is yet to be notified.

This curious case of taxing services provided by a regulator puts to test the negative list regime at a time when the country is proposing a transition to a unified goods & services tax regime with minimal exemptions. The prospect of Sebi having to pay up service tax could once again put the spotlight on tax department after the controversy over minimum alternate tax. Earlier this year, its notices to FPIs asking them to stump up MAT dues for earlier years following a verdict of the Authority of Advance Rulings drew criticism from investors and analysts.


The Economic Times, New Delhi, 27 August 2015

Comments

Popular posts from this blog

Credit card spending growth declines on RBI gaze, stress build-up

  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the...

SFBs should be vigilant, proactive to mitigate risks: RBI deputy guv

  The Reserve Bank of India’s Deputy Governor Swaminathan J on Friday instructed the directors of small finance banks (SFBs) to be vigilant and proactive in identifying emerging risks in the sector.Speaking at a conference for directors on the boards of SFBs, Swaminathan highlighted the role of governance in guiding SFBs towards sustainable growth with stability. He also emphasised the importance of sustainable business models.Additionally, he highlighted the need for strengthening cybersecurity to protect the entities against digital threats and urged for a stronger focus on financial inclusion, customer service, and grievance redressal to ensure a broader reach of banking services.Executive Directors S C Murmu, Rohit Jain, and R L K Rao, along with other senior officials representing the Supervision, Regulation, and Enforcement Departments of the RBI, also participated in the conference.   -  Business Standard  30 th  September, 2024

Brigade Hotel Ventures files draft papers with Sebi for Rs 900 crore IPO

  Brigade Hotel Ventures Ltd, owner and developer of hotels in South India, has filed draft papers with capital markets regulator Sebi to raise Rs 900 crore through an initial public offering (IPO).The proposed IPO is entirely a fresh issue of equity shares with no Offer-for-Sale (OFS) component, according to the draft red herring prospectus (DRHP).Proceeds from the issue to the tune of Rs 481 crore will go towards payment of debt, Rs 412 crore will be allocated to the company and Rs 69 crore to its material subsidiary, SRP Prosperita Hotel Ventures Ltd.Additionally, Rs 107.52 crore will be used to purchase an undivided share of land from the Promoter, BEL, and the remaining funds will support acquisitions, other strategic initiatives, and general corporate purposes.The company may raise up to Rs 180 crore through a Pre-IPO Placement.   If the placement is undertaken, the issue size will be reduced.Brigade Hotel Ventures Ltd is a wholly-owned subsidiary of Brigade Enterprises ...