Will Indian realty sector get vulnerable to government whims?

It seems that the 13th Finance Commission of India is no longer contented with its own conventional duties, especially dealing with the sharing of taxes between the central and state governments, and is trying to take hold of other sectors too. What makes us speak in this way? In accordance with a top official, the Commission is looking for to bring the escalating real estate under the proposed Goods and Services Tax (GST).

“I urge the government to include the construction and housing sectors (real estate) in the GST base either immediately or during a subsequent phase,” Commission Chairman Vijay Kelkar said at a conference on GST, organized by the Federation of Indian Chamber of Commerce and Industry (FICCI) in Bangalore.

Is this a new development or part of a greater strategy to subdue the raucous voices of the emboldened Indian private sector? Nothing is known yet but definitely the Commission has concluded that the construction sector is a significant contributor to the national economy and housing expenditure dominates personal expenses and all these have made it conclude that the existing piecemeal taxation of the real estate encourage vicious incentives.

“Raw material is charged at Cenvat (central value-added tax), the works contract is charged at VAT and stamp duty levied on the sale deed. With no provision of input tax credit in place, there is little incentive to record such transactions either at the construction stage or at the sale stage at their correct value,” Kelkar said. “Such multiplicity not only leads to substantial loss of tax revenue, but also fuels parallel economy.”

Looking for the support of the chambers of trade and commerce to the introduction of the GST effective from April 1, 2010, Kelkar said the railway sector should also be included in the GST base to give a level playing field to the road and air freight sectors, which would be subject to the new tax regime.

“We favour extending the GST to the real estate sector to regulate the business and bring in transparency in its operations. Such a measure will help all stakeholders, especially buyers, curb speculation, check artificial pricing and ensure accountability,” FICCI president H.P. Singhania said later.