Cement rate cut to 18% on the agenda of GST meet

Cutting the rate from 28% will cause the government a loss of Rs 13,000 crore annually

The GST Council will consider a proposal to slash the tax on cement to 18 per cent from 28 per cent at its meeting next week along with a ministerial panel report that proposes a cut in rates in under-construction properties, including affordable homes.

A rate cut in cement to 18 per cent will lead to a loss of Rs 13,000 crore annually to the government.

The Narendra Modi-government is keen to ensure the GST cut actually benefits the end users in terms of lower prices as the Lok Sabha elections loom.

Officials said the GST cut in cement and the panel report were on the agenda of the GST Council meeting on February 20. The Cement Manufacturers Association had been pitching for a cut in the GST to 18 per cent as it would boost infrastructure spending and create jobs, while reducing the costs of buying a house.

While cutting the rates, the council could come out with some guidelines to ensure the manufacturers pass on the benefits of the rate cut to consumers, officials said.

Union minister Arun Jaitley had in a Facebook post said lowering the tax rate on cement was a priority. Cement is the only commodity used by the common man that is taxed at the highest slab.

“Since the government and its agencies are one of the largest consumers of cement, the necessity of passing on GST rate cuts, whenever the rate reduction takes place, could result in some guidelines being issued as part of the rate reduction process,”.

Analysts said cement roughly accounts for a fifth of construction costs, and a 10 percentage point reduction in the tax burden will bring significant relief to buyers. A cut in the GST rate would boost demand and increase revenue collection.

Housing proposals

The council will also consider a report by a group of ministers (GoM) under Gujarat deputy chief minister Nitin Patel that has proposed a reduction in the rates for under-construction homes to 5 per cent from 12 per cent and in affordable housing to 3 per cent from 8 per cent — but without input tax credit.

Analysts said the margin in affordable housing is so low that builders were unlikely to pass on the GST benefits in the absence of input tax credit.

In the non-affordable segment, the builders are likely to pass on the benefits as the margins per square feet are high. Construction is a labour-intensive sector that contributes 8 per cent to the gross domestic product.

After a marginal growth of 1.3 per cent in 2016-17, construction activity had picked up pace to grow at 6 per cent in 2017-18.

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Residential Properties: GoM favours cut in GST to 5% from effective rate of 12%

New Delhi, Feb 8 (IANS) A ministerial panel set up to look into GST-related issues of the real estate sector on Friday indicated that it would recommend taxing under-construction residential properties at 5 per cent, down from 12 per cent currently.

Currently, GST is levied at 12 per cent with input tax credit (ITC) on payments made for under construction property or ready to move in flats where the completion certificate has not been issued at the time of sale.

A Group of Ministers (GoM) formed to analyse tax rates and issues being faced by the real estate sector under the goods and services tax (GST) regime has favoured reducing GST rate on under-construction residential properties to 5 per cent without input tax credit from current effective rate of 12 per cent, after abatement of value of land. The panel is also leaning in favour of a lower rate for affordable housing at 3 per cent from 8 per cent at present, a government official said.

The seven-member GoM, headed by Gujarat Deputy Chief Minister Nitin Patel, will finalise its recommendations in 1-2 days and then submit its recommendations to the GST Council, which will take the final decision on the proposal. “The industry players have asked for a higher rate with input tax credit but the ministers felt that the benefits of input tax credit don’t get passed on to homebuyers. That’s why like in the case of restaurants, the GoM has favoured lowering the GST rates on residential houses to 5 per cent without input tax credit and to 3 per cent for affordable housing,” the official said.

Currently, GST is levied at 12 per cent with input tax credit (ITC) on payments made for under construction property or ready to move in flats where the completion certificate has not been issued at the time of sale.

The effective pre-GST tax incidence on such housing property was 15-18 per cent. GST, however, is not levied on buyers of real estate properties for which completion certificate has been issued at the time of sale. There have been complaints that builders are not passing on the ITC benefit to consumers by way of reduction in price of the property after the rollout of the GST.

We want to ensure lower tax rates for housing for the middle class and homebuyers, Gujarat’s Deputy Chief Minister Nitin Patel told reporters after the meeting. Tax experts, however, said this may lead to breaking of inputs tax credit chain as some inputs such as cement are taxed at a much higher rate of 28 per cent.

Pratik Jain, Leader, Indirect Tax, PwC India said, “While the intention of the government is to provide relief to the end customer, from a structural standpoint, it should be ensured that the chain of GST credit is not broken. Perhaps a better approach would be to reduce prevailing GST rate on residential property, say bringing the effective tax rate down to 8 per cent from 12 per cent, while continuing the benefit of input tax credit.”

“For real estate properties where the cumulative impact of  tax cost on account of denial in credits and 5 per cent output GST rate is lesser than the current 12 per cent rate, this rate cut would be quite positive.  But where the cumulative cost is higher than 12 per cent, this rate reduction could entail an increased tax cost.”

The GST Council, headed by the Union Finance Minister and comprising his State counterparts, on January 10 decided to set up the GoM. The other Ministers in the seven-member GoM are the Finance Ministers of Maharashtra Sudhir Mungantiwar, Karnataka’s Krishna Byre Gowda, Kerala’s Thomas Isaac, Punjab’s Manpreet Singh Badal, Uttar Pradesh’s Rajesh Agarwal and Goa Panchayat Minister Mauvin Godinho.

The Group of Ministers headed by Gujarat Deputy Chief Minister Nitin Patel also favoured 3 per cent tax on the affordable housing category, down from 8 per cent. However, claiming input tax credit would no longer be possible on such transactions, an official said after the meeting of the GoM.

The panel set up by the Goods and Services Tax (GST) Council is expected to finalise its report in a week’s time and table it in the next meeting of the Council for final approval.

GST is currently levied at 12 per cent on premium housing and 8 per cent on affordable housing on payments made for under-construction properties where completion certificate has not been issued at the time of sale. No GST is charged if a property is bought after the issue of completion certificate.

The government had last month constituted a seven-member GoM to look into GST-related issues of the real estate sector. Its agenda was to analyse the tax rate of GST on the under-construction residential properties for boosting the realty segment.

There had been demand from many quarters to slash the rate on the segment to 5 per cent from the current 12 per cent.

Other members of the GoM are finance ministers of five states — Sudhir Mungantiwar of Maharashtra, Krishna Byre Gowda of Kerala, T.M. Thomas Isaac of Karnataka, Manpreet Singh Badal of Punjab and Rajesh Agarwal of Uttar Pradesh. Goa’s Panchayat Minister Mauvin Godinho is also a member. — IANS

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