FMC asks bourses to take additional undertaking at the time of part or full membership transfer.
The Forward Markets Commission (FMC) has asked commodity exchanges to ensure that tax dues are cleared by members before the transfer or sale of memberships.
In a circular issued to member-exchanges about a week before, FMC asked them to take an additional undertaking from members when an application was made for transfer of a part or entire membership. The undertaking should ensure the member has cleared all tax liabilities before transfer.
The FMC, however, has not made exchanges liable for tax evasion, if any, by its members. Commodity exchanges are not responsible for paying taxes on behalf of their members, said an exchange official. This is just an additional undertaking from members which will be forwarded to the regulator after change in membership.
With the lack of guidelines from FMC and the burden of various taxes, including income tax, transaction tax, sales tax and value added tax, members were selling their membership without paying the taxes. Since, neither FMC nor commodity exchanges under their jurisdiction got clear instructions from the relevant tax authorities, memberships were transferred without any evidence of payment of taxes.
The guidelines for transfer of membership differ from one exchange to the other, depending on the individual criterion set at the exchange level. But, no exchange has been seeking any clear undertaking for the tax paid to various authorities. Exchanges transfer membership in full or part after investigating various issues about the applicant and beneficiary. But, under the existing guidelines, transfer of membership cannot be questioned on the amount of tax paid by the applicant member.
Since the name of the entity changes upon transfer, the tax slab applicable upon the beneficiary entity also changes. As a consequence, there is more chance of tax evasion by the applicant entity. Transfer of membership is currently done within closed entities.
Understandably, the FMC has tried to ensure that all members should be compliant with all tax rules. This is another compliance the regulator has asked us to meet, said another exchange official. Commodity exchanges, however, are not going to audit the financial statements of members before transferring the membership.
While auditing some members accounts, FMC found they had not paid taxes to the relevant authorities. Also, the regulator had tried to bring more transparency in commodities futures trading and ensure members follow guidelines of various tax authorities. The regulator is also mulling transfer of data to various other tax authorities, including income tax and sales tax.