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Mutual funds rope in PwC to assess GST impact

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

Ashley Coutinho  |  Mumbai 

income, profit, money, invest, tax, bonds, mutual funds, dividend

Mutual fund body Association of 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 regime, (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 Rs 300-500 crore annually, assuming sector revenues of Rs 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 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 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 needs to be paid state-wise or in a consolidated manner.”   
 
AMCs will directly deduct the 18 per cent service tax from distributors that do not take a registration, under the reverse charge mechanism. Those taking a 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 Rs 10 lakh annually do not need to pay any service tax or register separately. However, post implementation, these distributors will have to register under and later claim exemption,” said Manoj Nagpal, CEO,
 
However, it is not yet clear if distributors earning less than Rs 20 lakh and catering to investors in different states can claim any exemption under the regime.
 
“Distributors working on a commission model may not have to register separately in each state. However, registered investment advisors working on a fee model and catering to investors in different states may have to register separately in different states leading to higher compliance costs,” said Nagpal.

First Published: Tue, June 20 2017. 00:23 IST
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