siliconindia | | November 20169Real estate sector is expected to gain profoundly from the implementation of GST. The tax structure is expected to act as a catalyst in expansion and panacea for its issuesauthority that strips off the power of pre-launches by the developers, which ex-ante RERA was a quintessential route for raising capital. This may push developers to resort for higher cost capital, thereby increasing the final unit value. Similarly, using carpet area instead of super-built up area for actual useable area will make the process more transparent; however, the development cost for super-built up area may eventually load off on carpet area, making it exorbitant. Paint industry, a complimentary industry to real estate, is exposed to a tax regime varying between 24-26 percent on an average. With the advent of GST, rates will apparently be pegged in the range of 17-19 percent which is going to be highly beneficial for consumers and also holds expediting repercussion effects on associated industries such as real estate. Another segment that highly correlates with the real estate sector is the cement industry. GST is going to certainly benefit the latter industry, on the back of reduction in the tax rates from 27-32 percent currently to 18-20 percent post GST. This will further have a multiplier effect on the real estate segment.The real impact on unit value in the real estate will entirely depend upon the final rate of GST and how RERA works, not only for the buyers but for developers as well. The sector is expected to grow dramatically in the long run on the account of rationalization in tax compliance, greater transparency, stability, timely delivery system, and gains in complementary sectors such as cement, steel, and BFSI. The outcome of act, for now, will be determined by how much the cost for developers will be negatively impacted, as it already seems beneficial for the buyers. In the medium to long run, RERA and GST will have an invigorating and thriving effect on real estate, for both developers and buyers. However, in the short run, RERA may create some turbulence due to continuous transitional and stringent policy measures for businesses.In conclusion, simplification of taxation is one of the crucial ingredients of the ease of doing business as every potential investor looks at the taxation procedure of the prospective investment destination country. India holds various strengths in terms of demography, demand and democracy, but has been challenged by complications in the ease of doing business. GST implementation is going to provide impetus to various reforms and polices introduced by the Government for the ease of doing business and to push India to a more simple, transparent and tax friendly regime. Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today is impacted by cascading impact of taxation. Hence, GST is also beneficial for consumers as there would be only one tax from the manufacturers and service providers to the consumer, leading to transparency and efficiency. It will prevent leakages from the system and provide relief in terms of reduced tax burden on most of the commodities. In a nutshell, GST will promote ease of doing businesses, help in reduction of transactions costs to businesses, boost manufacturing of goods and supply of services, increase price-cost margins of manufacturers, generate employment opportunities for the vast pool of young population with enhanced production possibility frontiers and push overall GDP growth of the economy in much higher trajectory. The need of the hour is to spread awareness at a larger scale about the implementation procedure and advantages of GST to every citizen of the country. Mahesh Gupta
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