The ambitiously hasty implementation of the goods and services tax (GST) has generated problems serious enough for the government to convene a five-member group of ministers to monitor the multiple technical glitches in the system and suggest ways to solve them. Given the unanticipated disruptive impact of the GST, with its myriad built-in complexities in rates and exemptions, it may be premature for the GST
Council to consider bringing real estate and fuel (petrol and diesel) under the purview of this new indirect taxation system. At present, both items are subject to a combination of local imposts and excise. This raises several contentious and complex questions with which the administration can ill afford to grapple at this juncture.
For a start, there is no clarity on the legislative agenda. Would bringing these items under the GST
require further constitutional amendments or just changes in the respective Acts? This issue is particularly confusing in the case of real estate because land is an immovable asset, whereas the GST
is imposed on "goods" defined as every kind of movable property. So for a start, imposing a goods tax on land may require a change in the definition of the GST. It is also unclear whether the GST would subsume stamp duty and registration fees and the local taxes on fuel. Although the Stamp Act is a central one, stamp duty, which ranges from 3 per cent to 10 per cent, and registration fee is collected by the states, as is the state excise on fuel, which varies from 20 per cent to 48.98 per cent. Merging these imposts would be tricky not just procedurally but also politically since states are unlikely to view favourably a further contraction of their revenue-raising powers, especially when the GST has raised uncertainties over their share of tax revenues.
If these are conceptual and political shortcomings, there are additional complications to consider, especially in real estate. The market for primary sales may be less of an issue since state value-added tax (VAT) is already applicable on such transactions and can be merged into the GST. But here too, business has come to a near standstill as a result of uncertainty over the offset allowed in the GST on works contracts. This has been linked to the deemed value of the land, which can easily be open to the taxman's interpretation. But the Indian real estate industry is unique in that the secondary market is as vibrant as the primary one. The question that arises, then, is would the rate be applicable on these transactions? If stamp duty and registration fees were to be added to the GST rate, the final tax on a secondary market sale could be so high as to dissuade buyers and sellers from registering their deal within the formal economy — defeating one of the principal purposes of the GST. This is not to argue that these items should not come under the GST. But given the stress in the current system, it would do the GST Council no harm to err on the side of prudence by deferring this decision until users have attained a comfort level in the new system.