Will GST Finally Ease Tax Pains of Real Estate?
The real estate sector, one of the most highly taxed sectors in the country, is likely to witness far-reaching reforms under GST.
Photo Credit : acting-man.com,
With the deadline for the implementation of the Goods and Services Tax (GST) inching closer, stakeholders in Indian real estate are getting anxious. The monumental tax regime change will replace the multiple central, state, and local taxes with a single value added tax on goods and services across the country. Come July 1, various charges including excise duties, service tax, custom duty, octroi, purchase tax, VAT, sales tax, entry tax, and luxury tax will be subsumed in GST.
The motive behind this revolutionary move is to cleanse the economy of duplicity of taxes, create a unified Indian market with a transparent taxation system, which will enhance the country’s appeal as a global investment destination. Besides simplicity in the tax structure, the estimation that GST could push India’s GDP to grow beyond 8 percent is one of the much-extolled virtues of the new tax regime.
GST and Indian real estate
The real estate sector, one of the most highly taxed sectors in the country, is likely to witness far-reaching reforms under GST. A prominent benefit that the sector anticipates from GST is the reduction of tax burden on developers. Currently, developers bear multiple taxes on construction inputs, which gets added to their total cost of construction and are subsequently passed on to the buyer. By merging multiple indirect taxes into one and doing away with duplicate tax instances, GST could help reduce the cost of construction by 20-25 percent. This will also be supplemented by the removal of restrictions on utilisation of input credit which would increase the developers’ margin. While the hope of price reduction for under-construction properties has cheered homebuyers, a lot will depend on the final GST rates which are yet to be announced.
Meanwhile, commercial realty will not remain untouched by the abolishment of multiple taxes and even flow of credits. By streamlining the tax structure, GST will enhance ease of doing business in the country, which would attract greater investments. The automation of compliance procedures will be crucial in reducing errors and increasing efficiency.
Warehousing and logistics sector
The warehousing and logistics sector are also expected to be significant beneficiaries of GST with the focus shifting from tax saving to efficiency and technological advancement. It will spur consolidation of assets in the segment with developers choosing to have fewer warehouses albeit at critical locations. Enhanced organisation in the sector, in turn, would attract greater interest from private equity (PE) investors, since they would be able deploy a larger quantum of funds in fewer assets, making monitoring easier.
The retail industry, too, will see an indirect impact of GST due to increased efficiencies in the supply chain. The cost to customer, which is linked to taxation, will reduce significantly as the multiplicity of taxes will no longer be an issue.
Thus, it can be reasonably asserted that a comprehensive and uniform tax structure would instil greater transparency in the real estate sector, boosting buyer sentiments and augmenting the growth of the sector. The ambitious move involves an audit trail for superior control and monitoring of the sector, which in turn will build a level playing field for organised players across industries.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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