GST negatives to outweigh benefits for mutual fund sector

In CNBC-TV18's special series 'Hello GST', Menaka Doshi decodes the impact of Goods and Services Tax (GST) on different sectors. Today's pick is ''mutual fund sector''.Currently, credit on service tax on distributor services received by Asset Management Companies (AMC) is not available on grounds that service is received by Mutual Fund (MF) companies and not AMCs, Jigar Doshi, Partner- Indirect Taxation, SKP Business Consulting tells CNBC-TV18. Under GST this will be available.Furthermore, the distributors will be able to claim credit/refund on service tax paid on their expenses, he adds. However, with the implementation of the tax, rate of tax may increase from the current 14.5 percent to proposed 18 percent or more. This could be an additional cost to MF companies and could be passed on to investors, says Doshi.In addition, distributors do not raise invoices to MFs. Central processing agencies, like Computer Age Management Services (CAMS), make payments to distributors and no credit will be available if invoices are not raised, he adds. Under Service Tax, 'goods' includes 'securities' and not Central Sales Tax (CST)/Value-Added Tax (VAT). If service tax definition prevails, there are chances that an additional tax on trading in securities will be levied besides securities transaction tax (STT), which will add to MFs costs, Doshi says. Watch video for more