Developers Body Urges For Service Tax Exemption For Construction Sector

Ahmedabad, Aug 26 | Updated: Aug 27 2004, 05:30am hrs
The Federation of Real Estate Developers (Freda) of Gujarat, along with real estate associations from other states, has urged the finance minister to exempt construction industry from the 10 per cent service tax. The construction industry was brought into the service tax net in the Budget 2004.

Jaxay Shah, acting president, Gujarat Institute of Housing and Developers (GIHD), said: "We met the finance minister (FM) and chairman of Central Board of Excise and Customs (CBEC) AK Singh last week and put forward our demands. We are opposing the central governments move to include construction industry, actually a production activity into the service sector. We are not a service based industry. The 16 real estate associations present from all over the country requested the FM to exclude the construction industry, particularly the construction of commercial complexes from service tax as it will burden the real estate developers already reeling under pressure due to increase in prices of raw material." According to Mr Shah, the FM has promised to look into the matter.

Mr Shah said: "The Rs 10,000 crore construction industry in Gujarat pays 45 per cent of its turnover to the government in form of all taxes. The 22 per cent excise duty on steel and cement, 12 per cent sales tax, 3 per cent octroi and 35 per cent income tax leaves a little profit margin for the builders. And now the additional 10 per cent service tax will only worsen the situation. The real estate developers in Gujarat will suffer the most as our state has the highest stamp duty of 9.9 per cent each on land allotment and construction in the entire country. We have also requested the state government to reduce the stamp duty by at least 4 percent."

Mr Shah added: "The director of Tax Research Cell Gautam Bhattarcharya has justified the service tax saying that all the developed countries charge service tax on construction industry but what he conveniently forgets is that developed countries dont charge any stamp duty, which is very high in India. However Mr Bhattacharya has proposed an alternative where the service tax shall be levied only on the labour component of the construction cost."

"The imposition of service tax on construction activities will increase the price of real estate by at least 10 per cent in Gujarat as the builders will certainly not operate under losses," elaborated Mr Shah.