Study On Fiscal And Taxation Policy Of Our Open-end Fund Sales Charges

The size of mutual funds has grown rapidly in past 10 years as an emerging industry, in a word, the essence of it is that the funds of individual investors are diversified into stock, bond and other financial products by professional investment team, and to make it concentrate funds, disperse risk and balance earnings. However, the improvement of related policies lag behind the quickly development of mutual funds in China, the shortage of law and policy gain more and more exposure as a result of industry maturity, only from the angle of taxation of sales charges, there are vicious competition, incomparable accounting information and external system circulation of national taxation due to the different understanding of accounting policy in many fund companies. This article discusses the law and policy of our mutual fund sales charges and draws conclusions in the last. The article consists of five parts.The first part summarizes the conception, characteristics and history of mutual fund in China. Mutual fund means that the fund sizes or shares are not fixed, and investors can buy or redeem shares anytime if they need. Mutual funds are popular and welcomed by numerous investors in current capital market, and become the mainstream product in international market, due to its multiple choice, superior liquidity, excellent transparency, low risk, convenient investment and well servings. The mutual fund went through four stages: the initiation stage, primary development stage, steadily growing stage and rapidly expanding stage. The initiation of mutual fund in China was late, and until March 1998, the normal standards began generate and the first mutual fund"Hua'an innovation"was officially issued in September 2001. From that on, mutual fund in our country developed rapidly for almost 10 years.The second part introduces the types and accounting recognition methods of sales charges. Mutual fund sales charges can be categorized as subscription fee (or dealing fee) and redemption according to dealing types. Subscription fee (or dealing fee) means the expenses that investors need to pay when they subscribe or deal fund shares, redemption fee means the expenses that investors need to pay when they redeem fund shares. There are two accounting methods to recognize revenues when fund companies collect sales charges: net recognition and full recognition. Net recognition method confirms the net expenses as revenues, for that fund companies deduct the part that agent companies should earn from the total expenses investors pay. Full recognition method confirms the total expenses as revenues, and regards the agency fee as cost of fund companies.The third part mainly summarizes the modes and taxation of mutual fund sales charges in others countries, and the revelation for us. The sales charges in developed countries often include subscription fee, dealing fee and redemption fee, most countries differentiate the above three kinds of fees from other fees during selling course, and clearly formulate the detail charging ratio and types with related selling policies. However, some countries recognize lump-sum fees which give clear indication of the standards and methods for subscription fee, dealing fee and redemption fee. Little foreign countries collect turnover tax as well as income tax, they usually only collect income taxes or profit taxes to enterprises. Only few countries (like Japan and China) add turnover tax (like business tax and value-added tax) in circulation process merely to increase national incomes. In a word, sales charges usually are fully recognized, and the net part recognizes revenues and is taxed in developed market economy countries and regions. Thus the revelation is: we could adopt the international common practice before there are not related law and policy standards in China.The forth part mainly analyzes the actuality and problems of law and policy of mutual fund sales charges in China, and the reasons of it. The accounting policies of sales charges follow"Accounting Standard of Business", and taxation policies in circulation process follow"Interim Regulations on Business Tax", the net profit part from the sales charges follows"Enterprise Income Tax Law". However, the formulation of sales charges of our accounting standards and taxation policies is too vague and rough to carry it out in practice, which also causes problems to the capital market and the whole economic order. The first problem is providing convenience for agent companies to create private coffer. The second problem is that there is no integrated standard and not comparable for financial index of different fund companies. The third problem is that it is not beneficial to industry data statistic and supervising management. The forth problem is that it is not beneficial to the national taxation. From the initiation of our mutual fund and its course to maturity, the reasons for problems of our taxation policies of sales charges based on three aspects: first, the specialty of fund industries does not reflected in taxation policies; second, the expression of existing taxation policies is too vague to cause misunderstanding and different execution; third, the enacting of taxation policies is too lag to meet the ever changing economic development.The fifth part raises the countermeasures to promote the development of taxation policies of our mutual fund sales charges according to the above analysis. The related measures are based on institutional construction and practice: first, the recognition basis of sales charges and consequent revenue by the main body of fund sales should be defined; second, the accounting information of sales charges should be sufficiently revealed by fund companies; third, the taxation standard of sales charges should be unified; forth, professional coordinating teams of fund industry should be established to try to achieve the standard practice; fifth, the construction of fund institution supervising should be reinforced to promote the justice, soundness and ordered fund market.The final part sums up five conclusions according to the whole analysis: first, mutual fund becomes one of the financial products in most countries to invest for its superior liquidity and convenient investment. Second, selling fund products through the agent network is the primary mode in international market. Third, the common practice in most countries is that investors pay the sales charges which is properly allocated between the fund companies and agent companies, and sales charges usually are fully recognized, and the net part recognizes revenues and is taxed. Forth, the taxation policies of sales charges in China are too fundamental to carry it out, and lack comparability, transparency and justice. Fifth, the related government policy support and induction are needed to promote the development of fund industry, and thus actively force the development of market economy, and assure the healthy economic growth. Department of finance, taxation and securities should keep closed eyes to the development course of fund industry and the linkage of new policies between finance and tax, and adjust the fund accounting methods and taxation policies in time, and unify the accounting and taxation policies of fund industry.