GST might push up banks' operating expenses

The effective tax rate for fee-based services of banks may rise from present 15% to 18%

Once the new national goods and services tax (GST) takes effect, banks might see a rise in operating expenses from this, while also gaining through the higher efficiency from the integration of markets.

The effective tax rate for fee-based services at banks might rise to 18 per cent, from the present 15 per cent. This might mean a moderate increase in costs for loan processing and credit card charges.

Banks have also flagged the issue of registrations across states.

Public sector bank executives said they'd want single registrations across states, to avoid the complexity from multiple registrations for branches and a uniform GST rate across services. Motilal Oswal Securities says as GST is a destination-based levy, companies would be required to take multiple registrations, at each state where services are rendered. This will increase the administration and compliance for banks, which currently operate with a single central registration.

Divyesh Lapsiwala, tax partner at consultancy Ernst & Young, said from a financial services standpoint, concerns need to be addressed on exemptions, place of supply and input recoveries. And, the, sector's demand for a central registration.

It might also need enough time to prepare their systems for the change. A time line of eight months from now might be stiff to meet, he said.

Edelweiss Securities says taxes on input services will raise operating expenses (rent, legal & professional fees, advertisements, insurance, telecom expenses) marginally for banks.

State Bank of India head Arundhati Bhattacharya says the structural transformation in the long term will be enormous and her bank was fully geared to meet the implementation challenge.