TOI’s take on GST to Fight with Black Money in Real Estate and Alcohol Market

TOI’s take on GST to Fight with Black Money in Real Estate and Alcohol Market

After the steps taken to reduce black money and streamline election money, the natural follow-up is to clean two of the biggest sources of black money —Real estate and Alcohol markets. And the natural way to do that is to bring the supply of land and real estate (hereafter LARE) into the GST. At the moment, the GST law does not include LARE and make another reform to bring Alcohol into GST, which seems missing right now.

GST Reforms in India have been highly appraised in the context of bringing more transparency in Indian Economy and Taxation System. Unfortunately, that is not the entire story. GST would have been better in fulfilling the expectations if real estate and alcohol had been included in its ambit because if we take a close look on this step of government, GST represents not just an economic reform, but also a step that will lead to formalization of Indian economy. This is a pre-requisite to win the battle against black money then Government could have given a consideration to include the sectors where is a big market for black money.

Taking Real estate in account- it has been identified by tax authorities as a significant repository of black money. Therefore, bringing the entire chain of real estate transactions, including sale of land, under GST is essential to provide an economic incentive to stakeholders to create an audit trail. Instead of using heavy-handed measures to fight black money, GST represents a sophisticated way to catalyze self-policing. Though, the present Indian government has promised tangible action will be taken against black money, but has done little. For starters, it needs to locate the money tucked away, both in India and overseas which is in plan but on execution front we don’t see any significant move. Bringing back the black money from abroad would be popular, but concrete steps need to be taken here regarding real assessment of properties at the micro level. For that, corruption must be weeded out. That also is completely based on the black economy. This is a tall order.

If we talk about the current scenario, there are few misconceptions about the Land and Real Estate; we are taking few misconceptions here which need to be addressed properly-

1. Stamp duties will be considered into the GST-Many states have refused to entertain bringing LARE into the GST, fearing that their right to levy stamp duties on the sale of land which is a big source of state revenue and it will be taken away from them if introduce LARE. While the truth is -Stamp duties will remain untouched.

2. Agricultural land will be taxable- Government has no intention to bring transactions relating to land for agriculture into the GST. The fear that there is a slippery slope leading to taxes on agricultural land and income is also unfounded.

3. Low-cost housing will be taxable- The general conception about bring transactions relating to low-cost housing into the GST is completely misleading. The fear that the price of housing for the poorer sections will go up because of new taxes is also unfounded. Housing below a certain cost (or below a carpet area of 60 square meters) will unambiguously not be subject to GST.

4. The tax burden will increase so the prices of LARE will shoot up — Government has no plan to increase the tax in the case of LARE. Bringing LARE into the GST will keep current effective rates of taxation broadly unaffected; what will happen is an increase in taxes at the final stage, but because credits will be available on input taxes, the real burden of taxation will not increase.

So, what will come into the GST? No detailed statement has been shared yet which can address this issue completely.

Similarly, alcohol has for long been a source of crony socialism. State administrations impose tight controls over the business, including its distribution. This inevitably results in corruption. In most of the states, there is a black market of alcohol which is not hidden from the government but due to lack of procedures and the size of this market, nothing recommendable has been done it. GST brought a ray of hope to control such markets but the excursion of Alcohol has put a stop on the thoughts to control it.

It is not too late to change the situation. From the Centre’s side, chief economic adviser Arvind Subramanian has repeatedly pointed out these flaws. AAP has pitched for the inclusion of real estate in GST. They need more support from India’s larger political parties. Current tax architecture does not encourage transparency, which leads to attendant problems such as black money. The way out is simplification and standardization of laws, which should not have too many loopholes. This will encourage transparency in economic transactions. GST represents a tool that can bring about this change.

 

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