Sunday, December 30, 2007

PAN comes in way of Sikkim residents opting for mutual funds

MUMBAI: Sikkim, the Buddhist kingdom that became a state of India in 1975, has suddenly become an inaccessible market for the country's mutual fund industry. And the barrier to that is not the great Himalayas but the permanent account number (PAN) of the income tax Department, the unique number that has nearly become ubiquitous for all financial transactions. The problem lies in the fact that Sikkim residents are not governed by the Indian income tax act. Rather, permanent residents of Sikkim are governed by the Sikkim Tax Manual 1948. They also want it to remain that way since they don't pay any income tax to the Indian government. They pay it to the state government instead. So they are not even required to have a PAN. In addition, most of them also perceive that applying for PAN would imply acceptance of Indian income tax acts, which most of them are resisting, industry sources said. But from July 2 this year, market regulator Securities and Exchange Board of India (Sebi) has made PAN mandatory for all mutual fund transactions, which includes fresh MF applications. And Sebi has not yet made any exception for Sikkim residents relating to PAN for mutual fund investments. Under Sebi rules, PAN is compulsory for all demat accounts also, but a Sikkim High Court order has exempted its residents from this rule. Instead the HC order has made proof of residence and a declaration from the applicant that he/she is a resident of Sikkim as the alternative for PAN for demat accounts. Most investors (retail as well as institutional) from the state who are also permanent residents of Sikkim, don't want to apply for PAN, and the local politicians are also discouraging the residents there against having one, said a top official at a leading mutual fund. Although it's a small market for the fund industry, yet a few of the fund houses were active there and till recently were mobilising funds. "Although it (Sikkim) is a small market in terms of size, it's opening up and growth opportunities are strong," said the fund house official.