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Tax and Regulatory Environment

2008-09-23

Tax and Regulatory Environment
Over a period of time the Tax and the Regulatory Environment in the Real Estate Sector have assumed much importance for businesses in India. The Construction Industry is already subject to a number of taxes and is considered as one of the overburdened tax segments. Companies involved in this segment are of the general opinion that there should not be any further imposition of any levy in any form in this particular sector of the economy. Any further tax burden on this sector would affect the orderly growth and development of the Real Estate Sector.
Major recommendations from industry members are:
Imposition of Service Tax: Service tax in relation to construction of residential complexes having more than 12 houses has been imposed. However, no rational has been provided for exclusion of services in relation to construction of residential bungalows which may not form part of a ‘residential complex’.
There seems to be no plausible rationale for taxing a residential complex and not construction of a bungalow which may entail a higher cost of construction in many cases. Further no rationale has been provided for the threshold of 12 dwelling units in a residential complex.
Service Tax should not be imposed in the case of construction industry as this industry is already paying a number of taxes on different inputs purchased for constructing the houses in addition to taxes such as Works Contract Tax (WCT).
Value Added Tax (VAT): VAT has been introduced in 20 States. Other states should also put the system in place as soon as possible. This would help in the free movement of goods across all the states. It is a well-known fact that the system is beneficial to all stakeholders- Consumers, Manufacturers, the State Government and Central Government. Moreover, it is important that the concerns of traders and the Corporate Sector should be resolved.
For the successful implementation of VAT, it is important that there should be uniformity in rates, rules and regulations across all the States. Not only do the rules vary from State to State but so do the regulations and the procedures. There is an urgent need to abolish CST, as VAT and CST cannot go hand in hand. It is important that local levies be completely abolished from all States. Allowing of Credit for interstate transfer should be brought in at the earliest.
Free Trade Agreement (FTA): The Government may consider signing up of more FTAs with other countries in the interest of the Real Estate Segment. However, while doing so the interest of domestic players in that particular segment should also be kept in mind.
Form C: Uniformity regarding permission to issue a Form- C for the purpose of purchasing the goods to be used in the works contracts. The State Governments should abide by the Central laws regarding the issuance of Form-C.
Central Sales Tax (CST): According to the CST norms, the sale definition includes works contract. Hence, any goods moving from one State to another for the purpose of usage in execution of works contract now falls under the ambit of inter-State works contract and the State from which goods move is liable to impose a tax. Incidentally the trader ends up paying tax in the State from which the goods moved, on the same item the tax has already been paid in the place where the execution of the contract has taken place. This portrays a dichotomy in taxation. The actual legal position is that the trader need not pay the tax in the State where the work contract is executed on inter- State purchases.
Excise Duty on Immovable Property: Excise duty should not be levied in the case of Immovable property like in the case of Installations such as lifts among others. The present norm that the goods cleared under CKD would have to pay excise duty should be done away with.

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