BSEC, NBR at odds over 15pc VAT on MFs\' fees

Complexities have arisen following a letter of the National Board of Revenue (NBR) on deduction of 15 per cent VAT from different fees of mutual funds (MFs).
NBR earlier sent a letter to the Bangladesh Securities and Exchange Commission (BSEC) regarding deduction of 15 per cent VAT from the MFs' accumulated fees of license, registration and permits etc. According to the NBR letter, the beneficiaries will have to pay the VAT.
The securities regulator held a meeting on Thursday with different Asset Management Companies (AMCs), trustees and custodians to discuss about the revenue board's letter regarding charging the VAT.
The BSEC officials opined that VAT is not applicable to the expenses of MFs, considering the nature of fund management.
"The MFs are operated through trust. That's why VAT should not be applicable to expenses of the MFs," said a BSEC official concerned.  
Disagreeing with the NBR letter, BSEC recently sent a letter to the revenue board, seeking exemption of VAT on the expenses of MFs.
The BSEC officials said VAT is applicable in case of receiving services. The AMCs collect investors' funds, and no one is receiving services from operation of the MFs.
The securities regulator said in its letter that the investors are not required to pay VAT while investing in the shares of the listed companies.
"The MFs' dividend declaration ability will reduce, if the VAT is charged on different fees. That's why the investors may be discouraged to invest in the MFs," a BSEC official said referring to their letter sent to NBR.
The official also said the investors' income from the MFs has been exempted from income tax. That's why VAT also should not be applicable on fees of the MFs.
According to the securities rules, maximum 4.0 per cent of the total size of a MF can be showed as expenses, which include registration fee, AMC fee, auditors' fee, publication fee, trustee fee and custodian fee.  
The BSEC officials said if 15 per cent VAT is imposed on fees of the MFs, additional cost of a MF may rise to around Tk 5.0 million.
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