Called the single most important economic reform post-independence the new regime of Goods and Services Tax is all set to replace the existing indirect tax structure and paradigm from 1st July 2017. It is all set to radically transform all the sectors of Indian economy, and the infrastructure segment of our economy won’t be left behind in drawing the sweet nectar of transformation from the beehive structure called GST.
What is GST and what will it change?
Goods and Services tax is an indirect tax structure which is an umbrella unified tax set to replace all the indirect taxes levied by states and central Govt. with 4 simplified tax arrangement known as – Central GST (CGST), State GST (SGST), Union Territory GST (UTGST) and Integrated GST (IGST). This will be applicable in all states of India uniformly except Jammu and Kashmir, which will subsequently adopt its own GST law subsequently. This reform is set to create a more simplified regime of taxation which is merchant friendly, taxman-friendly and consumer friendly thus creating a taxing paradigm wherein compliance will be the new normal. Thereby ushering in a new regime of transparency and accountability with simplification in the tax structure.
Presently the infrastructure segment of Indian economy is subjected to VAT and service tax wherein an immense amount of burdening litigation is accrued due to conflicting claims of central and state authorities, this adversely affects the realty sector. Few other contentions are taxability of joint development agreements are always marred by confusing tax liabilities which lead to conflicts between the developers and tax authorities. Moreover, another adversity that the present regime surfaces is that due to the varying quantity of stamp duties and non-uniformity in them, healthy competition is shown an exit which is the key essence of the market economic model for growth of a particular segment of the economy.
Post GST era is all set to present a more formalized taxation regime which will incentivize tax compliance. GST will also usher in a structure wherein cheap flow of credit is available throughout the segment which is presently marred with non-access to such capital infusion with is the quintessence of the sector. In the words of Mahesh Jaising of the BMR Associate, “GST regime is expected to impart greater transparency through market mechanisms and it is imperative that real estate transactions forms and integral part of the proposed GST design”.
“Realty-check for GST regime”
- Although tax rates are finalized by the GST council at 0%, 5%, 12%, 18%, 28%, but the council and the Govt. still is unclear about the tax to be levied on the real estate transactions and infrastructure projects wherein certain experts even claiming that 18% tax rate would make the sector a costly and non-compliant business. Hence fixing a revenue neutral rate (RNR) would be a challenge for the States and Central Govt. together that promotes growth for the sector.
- Safety of the network and database manager of Goods and Services tax is a challenge as it is done by Goods and Service Network (GSTN) which is to be managed by a private enterprise and thus can affect privacy and data security of the unit.
- The final concern is that, whether GST regime would “fully compensate” for the states and provincial units which are in tax deficit category after the implementation of GST, and certainly, National Capital Region of Delhi comes under the same head, which could see a definite fall in revenue volumes.