States fear large-scale tax evasion by builders if rate cut

The proposed GST rate cut with denial of input tax credit to builders will come with the rider that builders must ensure 80% of the inputs are procured from GST-registered dealers.

The proposed GST rate cut with denial of input tax credit to builders would come with the condition that builders must ensure 80% of the inputs are procured from GST-registered dealers. This comes as a section of the Council was concerned about large scale tax evasion by builders and so the Council wants to ensure that relief is structured in such a way as to plug revenue leakage.

A report in FE Online said that Kerala finance minister Thomas Isaac is of the opinion that including capital goods as inputs would enable developers to meet the condition easily. It will  open up a window for them to procure other building materials from unregistered dealers. He fears that this could result in even lower revenue collection for the government by facilitating more evasion.

Punjab finds the fixed formula of taking one-third of the cost of the residential unit as abatement for the value of land as skewed. It argues that this could deprive some states of their legitimate revenue.

The report said Punjab finance minister Manpreet Badal has suggested that a formula be evolved linking it to prevailing circle rates, instead of a blanket abatement.

It must be noted, currently transaction of land and under-construction houses for which completion certificate has been issued are outside GST purview. The GST rate for under-construction houses for which completion certificate has not been issued is 12%. A group of state finance ministers has proposed to cut the rate to 5% without ITC benefit to the developers. 

There are also other proposals for a reduction in the rate to 3% from 8% for ‘affordable housing projects’ as defined by the Reserve Bank of India and for a three-tier structure with a benign 1% rate for low-income housing.

Source: FE Online


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