Ahead of the 33rd Goods and Services Tax (GST) Council meeting Wednesday, close to half a dozen states including Kerala, Delhi and Puducherry have sent notes to Union Finance Minister Arun Jaitley asking for deferment of the meeting.
The finance ministers of these Opposition-ruled states have expressed concerns about the discussion on lowering tax rate on residential housing at Wednesday’s meeting which is slated to be held through videoconferencing and have sought a detailed discussion by way of a regular meeting at a later date.
Kerala’s Finance Minister Thomas Isaac said he has written to Jaitley asking for a regular meeting to discuss the real estate issue and the proposed reduction in lottery rates. “It will be more appropriate to discuss (these) in a regular meeting. I had also asked for deferment of the meeting of GoM on lottery (on Monday) on medical grounds but they went ahead with it and have suggested lowering the GST rate on lottery. This is malafide since a reduction in rate will not only impact revenues of states and Centre but benefit private middlemen and the lottery mafia. A uniform rate on lottery by removing the distinction between state-run and state-authorised lottery will benefit the lottery mafia,” Isaac told The Indian Express.
Delhi Finance Minister Manish Sisodia, in his letter to Jaitley, said, “…both the agenda items i.e. Special Scheme for Real Estate sector and Single rate of tax on lottery are of crucial nature and requires detailed discussion before arriving at a considered decision on the matters. Such kind of crucial issues cannot be discussed through a video conference and conveying of a physical meeting is important to take a consolidated decision.”
The Finance Ministry, however, in a media advisory, said the meeting will be held on Wednesday noon as per schedule.
The agenda includes discussion on lowering tax rate for under-construction residential housing and a uniform rate for state-run and state-authorised lotteries.
A Group of Ministers (GoM) on issues related to lottery under GST regime met on Monday and favoured a uniform tax rate of either 18 per cent or 28 per cent from the current rate of 12 per cent for state-run lottery and 28 per cent for state-authorised lottery.
Separately, another GoM, under Gujarat Deputy Chief Minister Nitin Patel, set up last month favoured lowering the GST rate on under-construction residential properties to 5 per cent (without input tax credit) from the present effective rate of 12 per cent with input tax credit (after abatement of land) and for affordable housing to 3 per cent from the current rate of 8 per cent.
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.
Sources said the states are concerned about alleged evasion by real-estate developers if they are allowed to move out of the input tax credit chain, a move against the basic concept of GST. “A reduction in GST rate for real estate without input tax credit will provide an opportunity to real estate builders and developers to evade taxes. They won’t be required to show proper records of payments. Especially with some inputs such as cement, which is taxed at a higher rate of 28 per cent, an inverted duty structure would get created and give an incentive to developers to engage in cash transactions and not maintain proper records,” a source said.
The issue of lowering GST rate on real estate and lottery was last discussed at the GST Council meeting on January 10 and was referred to two separate Group of Ministers (GoMs) after divergence of views emerged.
It is learnt that Opposition-ruled states had raised concerns over lowering the rate on under-construction residential properties citing potential leakages and no assurance of benefits reaching end-buyers. Also, some states are learnt to have flagged concerns of evasion with changes in taxation on lottery, especially ahead of the upcoming elections.
So far, there’s been no voting in the GST Council with every decision through consensus among member states/UTs. If voting takes place, then a decision of the GST Council needs to be taken by a majority of not less than three-fourths of the weighted votes of the members present, with weight of one-third of the total votes of the Centre and two-thirds weightage of votes of all the state governments taken together.
With the recent defeat of the BJP in three states, the composition of the Council has changed and the central ruling party will require support in case all Opposition-ruled states decide to vote against the proposal.