States to bear GST burden of builders

Benefits due to Input Tax Credit to be deducted

Principal Revenue Secretary Somesh Kumar on Friday assured building contractors engaged in government projects that additional tax burden, if any, as a result of Goods and Services Tax will be borne by the State government.

In doing so the government would, however, be taking into consideration benefit accruing to them on account of the Input Tax Credit (ITC).

Speaking to the media on the sidelines of a seminar on GST organised by the Builders Association of India (BAI) here, Mr.Kumar said hitherto works contract attracted two levies — value added tax at the rate of 5% and service tax depending on the work. Also, no ITC was available to the builders.

Though the levy under GST is set at a higher, 18% rate, it is accompanied by ITC availability. Builders thus get to avail ITC accruing on purchase of raw materials such as cement, steel and bitumen. “In effect, the net [tax] will not be 18%,” he said, adding the change, however, had given rise to a lot of doubts among the builders. They are also concerned about GST’s impact on their working capital.

Noting that the seminar is to discuss the issues, he said government tender conditions stipulate that any mid-course increase in the tax levy would be borne by the government. Under GST too, the government would bear the burden but after deducting the benefit on account of ITC.

“Net of tax will be paid… on that count there should be no doubt,” he said, pointing out that projects involving more consumption of cement and steel, the ITC would be higher. In such cases, the burden on builders would not be much, he explained.

But in case the work involves use of sand, there will not be any ITC and the burden will be higher. For government, if the tax to be paid by the builders is high it meant an outgo, while a lower incidence would translate into savings.

All the apprehensions of the builders can be addressed easily, Mr.Kumar said, adding: “We will discuss project by project” and accordingly make recommendations to the government.

National vice president of BAI S.N.Reddy said the only demand of the builders was that all statutory levies pertaining to the projects should be reimbursed by the government. Despite a higher rate, the sector is likely to benefit under GST regime due to availability of ITC, he said, adding over the next few months the builders would be able to ascertain the benefits.

Impact assessment meet

Stating that the levy under GST on irrigation projects had gone up from 5% to 18%, Mr.Kumar said a meeting was held recently under the chairmanship of Special Chief Secretary and another, to assess the impact, is to be held on July 17.

On the transition to GST and impact on traders, the official replied it was business as usual. Since doubts lingered, the Commercial Taxes Department was conducting outreach programmes in all districts as well as sector specific meetings with respective trade and industry associations.

Source : http://www.thehindu.com/news/cities/Hyderabad/state-to-bear-gst-burden-of-builders/article19281784.ece

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