The GST Bill is expected to have a huge impact on all stakeholders of the personal finance industry – mutual funds, insurance, distributors and investors.
In fact, AMFI has recently shared a presentation on GST and its impact on the mutual fund industry with all fund houses. PwC has prepared this report for AMFI.
Cafemutual has a copy of this report.
A few compliance officials of AMCs to whom Cafemutual spoke say that while operations and procedural modalities are still awaited, here is how it may affect the mutual fund industry.
A key question that the bill raises is regarding the requirement of state specific registration and compliance. A senior fund official of a large fund house said that this will increase the cost of compliance for both AMCs and distributors. He said, “The current Bill says that the service tax has to be paid at a place where it has been consumed. AMCs and distributors have investors spread across the country. That means, both AMCs and distributors will have to register themselves with the service tax department of the respective states. This tax can be paid online but auditing and compliance need to be done at the source state.”
This official further said that the re-introduction of reverse charge mechanism will help distributors to deal with this. He says, “AMCs anyway may have to register with all states. However, distributors can request government to put them under reverse charge mechanism which will shift the onus of paying service tax on AMCs on behalf of distributors. This could reduce the cost of compliance for distributors. However, a few distributors who earns less than Rs.10 lakh may get affected. But it would benefit all them for sure in the long term.”
Another key issue for the industry is inclusion of securities in the definition of goods. A senior official from a bank sponsored fund house told Cafemutual that the proposed Bill has included securities in the definition of goods. “Currently, there is no service tax on securities as it doesn’t come under consumable goods. Security is an investment product. However, if the Bill is implemented in the current structure, every time a fund manager executes trade, the fund will have to pay service tax just like STT. Simply put, it will raise costs substantially and dampen the demand for this product.”
Other key impact
Investors: The GST Bill may also impact investors, since fund houses charge service tax on management fee. Suppose the total expense ratio (TER) is 2.50% and the scheme is charging 1% management fee, service tax is levied on management 1% fee. Fund officials say that the TER might go up by 3 to 4 basis points.
Distributors: A senior fund official says that while government is yet to decide the quantum of service tax on various services, the service tax liability of IFAs may go up. Based on current speculation, the service tax burden of distributors earning over Rs.10 lakh may go up to 18%.
It remains to be seen how the government and the industry deals with these issues.
