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Consumers of financial services such as banking and insurance are unlikely to be affected despite the Goods and Services Tax (GST) Council fixing the GST rate higher at 18 per cent.
Some tax experts believe thaat the input credits that service providers will get under GST will be passed on to consumers, thereby offsetting the higher GST rate. Currently, financial services are taxed at 15 per cent.
S Ravi, Practising Chartered Accountant, said, “Though the GST is pegged at 18 per cent, financial service providers will get the benefit of input credits. In service tax. the input credits are limited. So, under the GST regime, there will be an element of balancing that will happen and the end consumer will not be impacted.”
Input (tax) credit allows a service provider to lower the tax its owes the government by allowing it to claim a credit on what it has paid on inputs.
The impact of GST will be neutral in the short-run, Ravi said, adding that in the medium to long run, it will be beneficial to entities in the financial services sector as well as their customers.
Bank of Baroda Executive Director Mayank Mehta said, “We floated an RFP (request for proposal) to engage a consultant to help us (with GST implementation). I don’t think it (GST) will have any impact on the customer...”
More for forex conversionSachin Menon, National Head, Indirect Tax, KPMG in India said NRIs may end up paying more on foreign exchange conversion.
“The maximum GST charges on conversion of foreign currency has gone up from ₹7,000 to ₹60,000. This can hurt NRIs, especially those working in Gulf countries, who earns low wages and make remittances to their families,” he said.
Banks are also up against challenges such as multiple registrations and multiple transactions across States, dealing with transaction-wise invoice, and issues relating to valuation on services from certain centralised services like IT and call centres.
But a majority of the financial services players said the negative impact would only be in the short term.
Mohit Sahney, Founder at Finova Capital, said, “Since financial services form the backbone of growth in the economy, the government should have kept it at the previous rate of 15 per cent. However, given the fact that GST is going to boost the entire economy, the slightly increased cost will nullify in the medium to long run.”
Rishi Gupta, MD & CEO, Fino Paytech, a payments company and a future payments bank, said there will be increase in compliance requirements at bank branches. “This is a challenge that banks need to gear up to, including the impact on cost of services to the customers,” he added.
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