Mutual funds get PwC to assess GST impact SNAPSHOT

Mutual fund body Association of Mutual Funds in India (Amfi) has appointed consultancy PwC to prepare a white paper on the implementation of the goods and services tax (GST) and its impact on the mutual fund sector. PwC is expected to finalise the draft this week which will then be forwarded to the Securities and Exchange Board of India (Sebi).

Under the GST regime, asset management companies (AMCs) will have to pay service tax of 18 per cent on the investment management fees they earn. Until now, the rate was 15 per cent. This might lead to an additional tax outgo of ~300-500 crore annually, assuming sector revenues of ~10,000-15,000 crore. Since the tax is ultimately borne by investors, their expenses will go up marginally.

Management fees are part of the total expense ratio charged annually by AMCs. These include marketing and selling expenses, fees paid towards registrar and transfer agents, trustees, auditors, etc. Typically, equity funds charge | | | | Amfi has appointed consultancy PwC to prepare a white paper on implementation of GST and its impact AMCs will have to pay a service tax of 18% instead of the existing 15% The additional tax burden is likely to be passed on to investors AMCs might have to do a management fees of 1-1.5 per cent of the assets under management, while debt funds charge between 0.05 per cent and 0.5 per cent.

The GST Act says the tax is to be paid at a place where it has been consumed. This has led to confusion among fund houses and as distributors which provide services across the country. “AMCs will have to do a detailed revenue and cost allocation for each of their branches and give the inputs to the individual states,” said a fund house chief executive officer (CEO), on condition of anonymity. “AMCs and distributors need clarity on whether the | | detailed revenue and cost allocation for branches in different states For distributors not registered under GST, service tax will be deducted by AMCs Advisors who charge fees might have to register separately in different states, leading to higher compliance costs GST needs to be paid statewise or in a consolidated manner.”

AMCs will directly deduct the 18 per cent service tax from distributors that do not take a GST registration, under the reverse charge mechanism. Those taking a GST registration will come under the forward charge mechanism, whereby the tax will have to be paid by the distributor directly.

“Under existing laws, distributors earning less than ~10 lakh annually do not need to pay any service tax or register separately. However, post GST implementation, these distributors will have to register under GST and later claim exemption,” said Manoj Nagpal, CEO, Outlook Asia Capital.

Industry fears additional tax outgo of ~300-500 crore due to higher service tax