Mutual funds to become costlier on GST implementation

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Under GST, which is likely to take effect from April 1, consumers may end up spending more as service tax burden would go up.

 The current service tax is 15 per cent, while under GST regime it may go up to 18 per cent, making the implementation of GST unfavourable for the mutual fund sector as investors will end up paying more taxes.

Investors will have to shell out more for buying mutual fund products after the implementation Goods and Services Tax (GST), which the government expects to bring into force from April next year. Investment in mutual funds will become costlier by 300 basis points or 3 per cent, says experts.

Under GST, which is likely to take effect from April 1, consumers may end up spending more as service tax burden would go up. While there is no indication of what the GST rate will be, experts put it between 18 and 22 per cent. The current service tax is 15 per cent, while under GST regime it may go up to 18 per cent, making the implementation of GST unfavourable for the mutual fund sector as investors will end up paying more taxes.

“It will impact all three stakeholders investors, distributors and manufacturers. Investors will pay management fees with higher service tax increase from 15 to 18 per cent,” Reliance Mutual Fund Chief Executive Sundeep Sikka said. “Asset Management Companies (AMCs) have to compensate investors on liquid kind of products where fee charged are inelastic and to distributors who will ask manufacturers to bear part of the burden,” he added.

In services sector, including MF, which did not have multiple taxes, GST will not subsume other taxes. On the contrary, there will be about additional 3 per cent hit for investors. The GST Bill, which was passed in the Rajya Sabha on Wednesday, was taken up in Lok Sabha on Monday.

Hailed as the most powerful tax reform that India has seen, GST aims to do away with multiple-tax regime on goods and services and bring them under one rate, will subsume central excise, services tax and various local levies. “Based on the final rate decided, it could increase rate of tax on management fees, potentially lowering fees received by the AMC’s. The rate of tax on fund accounting, custodian fees and other services could also increase. Besides taxing of services on basis of place of supply will further increase initial capex and ongoing compliance costs,” Quantum MF CEO Jimmy Patel said.

“AMC’s may choose to absorb the overall increase in the costs on account of GST or pass it on to investors by increasing expense ratios of the schemes to the extent permitted by Sebi Regulations,” he added.

Source: http://indianexpress.com/article/business/economy/mutual-funds-to-become-costlier-on-gst-implementation-2961664/

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