For the financial services sector, the Goods and Services Tax (GST) implementation has been a mixed bag. The positives of implementing the biggest ever indirect tax reform outweigh the negatives or the continuing pain points, say experts and finance industry players.
The crucial and significant aspect of GST implementation has been the fact that the Government has been “receptive” to suggestions of industry. The Government’s move to form sectoral working groups to address the challenges faced by industry was an excellent one and worked well, especially the one set up for financial services, Raman Aggarwal, Chairman, Finance Industry Development Council (FIDC), told BusinessLine .
One major challenge that still remains for pan-India players including banks, insurers and NBFCs is the requirement of multiple registration. “For a pan-India player like a bank or NBFC, they need to register in every State. That is a challenge and a bit of cost. When the objective is ease of doing business, this could have been looked into and tackled,” he said.
Suresh Surana, Founder of RSM Astute, said: “Overall there has been an increase in impact of GST on financial services space due to an increase in rate from 15 per cent to 18 per cent on taxable services as well as reversal of input tax credit on notional basis (banks) and on actual basis for others due to significant exempt income”.
Most entities such as banks, insurance companies and stock brokers, have presence in multiple States and GST requires them to do separate compliances for each and every State where they have a presence, he said.
“Place of supply aspects have become more crucial and exposure on account of incorrect interpretation of the same could be significant. It is clear that entities in the financial services would have to embrace automation to do monthly compliances under GST regime,” Surana said.
Experts also hailed the Government move to issue FAQs on financial services, which has clarified various pertinent issues such as applicability of GST on securitisation transactions and levy of GST on interest on SEBI margin trading facility.
“Practical issues like cross charging of common expenses, issuance of GST compliant documentation and ensuring that billing software are properly configured with the GST related controls are also pain points for the industry,” Surana said.
Kalyan Basu, MD & CEO, A. TReDS Ltd. (Invoicemart), said: “One of the most revolutionary aspect of GST implementation is how seamlessly it can be potentially connected to marketplaces such as TReDS. We at Invoicemart are of the view that linkage between GSTN and TReDS will lend a huge credibility to invoice financing and reshape the way MSMEs finance themselves.”
Gautam Mukherjee, General Manager, Global Delivery-India, Avalara Technologies Pvt Ltd, said FAQs on financial services brought clarity on the implication of GST levy on the sector. However, both investors as well as financial institutions remain puzzled on how components such as “exit loads” charged by mutual funds at the time of redemption, additional interest charged for default in payment of loan instalments and charges for late payment dues on credit cards outstanding can be considered as “services” and attract GST, he said.