Vision of Life; by Sanjay: GST, Real Estate & Government!

“This is a question too difficult for a mathematician. It should be asked of a philosopher"(when asked about completing his income tax form)” … Albert Einstein.

Well, even the greatest mind on the earth was helpless when its understanding the tax (income or any) he has to pay & I am happy at least on this front (read at tax front) we as a country are at par with the most powerful, sought after for living country, yes I am referring to the USA! So, no wonder the term Tax itself is enough to send jitters in mind of even the salaried class & needless to say what it must be making to the business people! Off-late we (read our rulers, means govt) are obsessed with the term “Ease of Doing Business” but please don’t ask what it actually means as like cold or warmth, this is something not just the person in business but everyone associated with the business has to feel it instead describing it! And when we say someone is a businessman then how you define it; is it just his balance sheet which reveals that he is a business man or he has to be an industry or unit or a shop or what? Well, by me a business man (read business woman also) is the one who has to generate him own earning by himself for his or her earning (read survival); in nut shell nobody gives him some assured fixed salary per month or year or even per day! With due respect to every salaried person, I don’t mean that getting salary is easy or of less dignity than being a business-man; what I want to put forward is definition of business man as I represent that class! And when this business is related to Real Estate then the taxation thing become more complex, it’s like the “Chakravuva” (strategic arrangement of the army which holds a warrior’s progress) of Mahabharat & you feel like Abhimanyu who has entered in it but now left all alone to get out of it & just like the Abhimanyu’s end most business men (read entrepreneurs) ends up getting defeated by this Tax named Chakravivyua!

Sorry if I sounded a bit melodramatic but as an engineer I have been always poor with financial figures & taxation too! Yet you can’t say I don’t know swimming when accepting profession on a Ship, same way trying my bit with the figures as well taxation & realizing the maze it has become here! To start with & yes keeping all respect for the intentions of govt for bringing in GST for real estate but as usual it’s the implementations which makes the real mess. Let’s see what was scene before GST in real estate, not that it was very clear as we had VAT i.e. Value Added Tax (I really get confused with such terminologies) which is applicable on every purchase of any goods. And then there was Service Tax which is for any service offer i.e. where labor or man hours are involved. So on any deal these two taxes were applicable & we are right now referring to just work related taxation. Indeed this system was creating bit confusion as VAT was State Govt tax & Service Tax was Central Govt’s making it necessary for every real estate man (read builder) to get two registrations & file separate returns for both heads. Also there was confusion on getting rebate on collected VAT & Service Tax from the customers’ i.e. home buyers. This is one more thing I never understood as why there has been rebate policy why there can’t be one simple plain method of taxation for all transactions! And then somewhere in 2016 both VAT & ST are abolished & one combine tax has been created i.e. GST. This GST was also different on different goods i.e. for cement if its 17% then for sand it was 12% creating confusion in the for all the builders as how you work out production cost, why there can be one percentile for one industry, no logic or at least I didn’t got it! And then for the finished product i.e. flats (read as homes) it was 12% which was big burden for a product as costly as home; and this was supposed to be charged by the builder to the flat buyer on sale value of the flat. Joke is then the builder has to pass on the savings he has made on the GST he has saved (god knows what & how) on the purchases or services during the construction to the flat buyers after the completion of the project. And here completion means not construction aspect but the balance sheet aspect. But what if a builder passed on some part of saved GST to the flat buyer (only if the builder is able to work it out) & then in scrutiny which going by the govt standards happens two or three years down the line after the project is completed & the tax dept demands more tax from the builder? From whom he will collect it then? Well, you don’t ask such questions here if you want to become a builder is the answer! And on top of it there was zero GST for completed projects. This hit the builders two ways as its big saving (near 8% even after rebate) for the flat buyers to go for ready possession homes as well how then the builder would get rebate on his spent GST on the construction processes? No answer again & things in real estate came to stand still!

Our “Mai Baap” govt woke up finally on the cry of builders (yes even builders can cry) & came up with 5% GST for flats (homes) instead of 12%. But then govt didn’t want to lose the money so it added one more condition to this correction (how I love these conditional things with govt policies!) & that was if a builder charge 5% GST to his flat buyer then he won’t be allowed to clam any rebate for the GST he has paid for the construction materials & services. In nut shell if average GST paid by the builder is some 12% on the entire construction cost then he has to bear it from his pocket! Now show me any Raja Harishchandra (a mythological figure famous for his kindness) who will bear any burden on spending from his pocket & why one should! Indeed we are in business & I agree that greed should not rule our business philosophy but then the philosophy in first place needs to be survived for that, isn’t it? I think with all respect again for good intentions of the govt, this fact about making the businesses survive first is what govt needs to understand before coming up with any policy! Time & again real estate’s main demand was, take the key people (read businessmen in real estate) in confidence before bringing any policy especially as sensitive as GST & there are still good builders around who knows about doing fair business for giving proper suggestions! Agreed the country if going through a transition & considering size as well diversity here, no change will be possible over-night but at least we can make that change happen smoothly! As what is the logic for applying GST for ongoing projects & zero GST for completed project I really fail to understand. Because when the product is costly as a home & when we speak about affordable homes where every rupee counts its obvious that the customer will go only for ready-made (read completed home) if he is saving few lacs of rupees in form of GST! But then by doing so we are breaking backbone of real estate industry as from where the developer will be getting the money; as the Banks won’t give loan to buy the land & customers won’t book in ongoing projects because to save GST! Has the financial wizards in govt thought this will make developers to bend knees in-front of the private financers (loan sharks actually) & borrow at very high rate risking the project itself going in loss or adding production cost which in actual is going to be paid by the so called affordable home’s buyers only!

What govt has failed to understand about real estate is unlike other industries; here the product is not getting ready over night with increasing machinery. Right from obtaining hundreds of NOC’s, which includes environment to aviation ministry (thank God yet Space Ministry is not involved) to getting land possession & many more NOC’s during construction, the entire process of completing one product goes on for more than two years (minimum time). And during this if you change the tax calculation system type basic thing then it hampers the industry very badly as right from CAs’ to even taxation authorities all are confused about how to charge, what to charge & whether charged (read collected) taxes are right! And on such background where profession experts as well tax authorities are confused how you can expect the developers who are most illiterate (sorry, I meant not much exposed to finance field) can work out their balance sheet calculation & then are we not surrendering entire home buyers to such lot who doesn’t even know whether their project will make profit or loss!

And then GST is just one of the bites which govt is taking from the cake (rotten it is now) named real estate as no other industry (read finished product) apart from tobacco & liquor industry is as tax burdened as real estate is a harsh fact! If you don’t believe, then see this; we have to pay nearly 8% GST (correct me if I am wrong) with this new no rebate GST policy. Then there is stamp duty & registration on land as well flats build on it which is nearly 8% in Pune (thank you Metro)! Then per sq ft of built-up area local bodies (PMC/PCMC) collects approximately Rs 200- 500 per sq ft making it nearly 5% to 10% of sale rate & then if at all you make some profit there is income tax also! So whatever sale revenue is the govt (it includes all head under the name) more that 25% of this & yet blames builder for making money more than he deserves! And oh yes, don’t forget the step-daughterly treatment by Nationalized Banks when it’s funding to real estate (read builders). As the govt takes lead in making surviving Industries like Aviation & Steel, by intercepting with Bank’s procedures, I don’t remember the very same govt ever tried with such softness for some builder! Look at the interest rates charged by the banks while financing to the builders (if at all they finance in first place) its nearly double than hospitality as well agro industries & then this interest burden is one more huge expense for the builder’s balance sheet! It was true that builders have earned a lot but that was glorious past & then govt has also earned out of that cake (read real estate) when it was fresh, isn’t it? Now when you want to regularize real estate like any other industry then what’s wrong in expecting fair treatment also along with, like other industries enjoys from the “Mai Bapp Sarkar”! Levy taxes on us but please simplify its working system & percentage should be rational is all real estate industry expects!

To conclude about taxation on real estate, I will just remind the govt about a tale from “Isap Niti” (a book of folk tales) regarding the Greedy Owner & his Hen giving one Golden Egg each day! Do I need to explain the resemblance here & who is playing what role when its taxation on real estate; the Hen (read real estate) is still able to deliver daily a silver egg if not golden but can’t change its fate if the owner wants to eat chicken only than be satisfied with daily a egg!

Sanjay Deshpande

Sanjeevani Dev.

Please view my sharing about real estate in Pune at U-Tube link below..

https://youtu.be/g3lx1Nq7pBs

Please do visit my blogs to know about our philosophy at Sanjeevani ! (Click the links below)

http://visonoflife.blogspot.com/2018/08/pune-city-no-1.html