Goods and Service Tax (GST) is a forward-looking tax reform on part of the government. There is no doubt that it will be a game-changer for the Indian industry, bringing in a more comprehensive and uniform tax structure that will ensure greater transparency in the economy. However, there are certain areas in which we would like the government to intervene at the earliest and provide clarity on the same.
Demonetisation, RERA and GST are all landmark developments in the country. They are all being implemented within a short span of each other which is bound to cause short term upheaval till the time the economy gets accustomed to it. However, in the long term all these are certain to make the industry more transparent which will boost investors confidence in India.
While the intent is to streamline the tax administration and bring more businesses in the tax net, it is unlikely that GST will have any impact on property prices. We feel that the current rate of 12 per cent on under construction projects might marginally bring down prices in the affordable segment owing to the input tax credits, but it is unlikely that similar impact will be felt in mid-priced or premium developments.
More clarity will prevail once the GST gets implemented and the government clears its stand on the abatement available for the land cost for calculating service tax on under-construction projects. This will have a major implication on the final prices because if the cost of land is 10 per cent of overall project, there is a possibility of costs not rising much. However, in major metropolitan cities of India the land cost is almost 50-60 per cent of the total costs, so apartment prices will rise here.
While developers might still get some benefits for projects that are in nascent stage, they will have to bear the tax burden for ready-to-move in projects since they are kept out of GST ambit. One more area that needs immediate attention is stamp duty. It will continue to remain in force even after implementation of GST and the rates are varying for different states. The additional burden on the sector on account of the stamp duty averages 5 per cent to 7 per cent. We hope that state governments abolish the same which will bring down the final cost of the apartment.
If these issues are addressed we certainly feel that the new regulations will help increase investments in the real estate sector thereby having a positive impact on the entire economy.
About the Author:
Surendra Hiranandani is the Chairman & Managing Director of House of Hiranandani.