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The 13th Finance Commission, which handles the tax sharing between the state and central governments, has called for the inclusion of real estate under Goods and Services Tax.
"I urge the government to include the construction and housing sectors (real estate) in the GST base either immediately or during a subsequent phase," Commission chairman Vijay Kelkar, while addressing a convention on GST, conducted by the Federation of Indian Chamber of Commerce and Industry (FICCI) here.
Stressing that real estate is one of the major contributors of national economy, he added that the present piecemeal taxation of the real estate encouraged perverse incentives.
"Raw material is charged at Cenvat (central value-added tax), the works contract is charged at VAT and stamp duty levied on the sale deed. With no provision of input tax credit in place, there is little incentive to record such transactions either at the construction stage or at the sale stage at their correct value," Kelkar said.
"Such multiplicity not only leads to substantial loss of tax revenue, but also fuels parallel economy."
Kelkar, in attempt to gain the FICCI support on GST, which will be effective from April 1, 2010, mentioned that railways should also come under GST so that it will consistent with the road and air freight sectors.
"The inclusion of rail sector in the GST will ensure that all inter-state transportation of goods can be tracked through the proposed IT network," the former finance secretary said.
He mentioned that the input tax credit will definitely be advantageous for The Indian Railways, as the purchases made annually are enormous.
Endorsing Kelkar's view, the chamber has called upon the government to include the real estate sector in the GST net.
"We favour extending the GST to the real estate sector to regulate the business and bring in transparency in its operations. Such a measure will help all stakeholders, especially buyers, curb speculation, check artificial pricing and ensure accountability," FICCI president H.P. Singhania told reporters later.
