There is minimal impact from the GST where retail broking is taken in isolation with a small increase in the amount of service tax. The impact on ancillary sectors and the overall industry is more from an aspect of changing policies and implementing new means of calculating tax which will come with its own learning curve.
The new GST rates will apply to some banking transactions, mutual funds, insurance and stock market which were earlier taxed at 15 percent including Krishi Kalyan cess and Swachh Bharat cess.
In mutual funds, the total expense ratio (TER) charged for managing funds and distributor commissions etc., would increase by 4-5 basis points. TER for mutual funds varies between 1.25 percent and 2.75 percent.
When it comes to stock broking, in particular, the brokerage component on which service tax is calculated is a very small proportion of the overall transaction. This could slightly dearer to retail participants. We don’t see this as having a material impact on the overall charge structures.
The introduction of the GST model is a significant development that is set to transform how the Indian taxation system works. However, considerable work needs to be done and the implication of GST for banks and financial services needs to be understood.
The government should also ensure the GST legislation addresses the complete concerns of banks and financial services so that the GST reform turns into a success for everyone involved.
Disclaimer: The author is Co-founder & Head of trading, Zerodha. The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.