Finance minister Arun Jaitley, while delivering a lecture at Harvard University on October 12, 2017, has said that the real estate sector should, ideally, be brought under the ambit of the Goods and Services Tax (GST) and that the same would be discussed at the next GST Council meeting on November 9, 2017, in Guwahati. “The one sector in India, where maximum amount of tax evasion and cash generation takes place and which is still outside the GST, is real estate. Some of the states have been pressing for it. I personally believe that there is a strong case to bring real estate into the GST,” Jaitley said, while delivering the ‘Annual Mahindra Lecture’ on India’s tax reforms.
“In the next meeting itself, we are addressing one of the problem areas or at least having a discussion on it. Some states want it, while some do not. There are two views. Therefore, by discussion, we will try to reach one view,” he said. The finance minister said the move would benefit consumers, as they will only have to pay one final tax on the whole product. “As a result, the final tax paid on the whole product under the GST, would almost be negligible,” he said.
Jaitley said the reduction in eventual expenditure, coupled with incentivising people to enter the tax net, may also help reduce the size of the ‘shadow economy’. A 12 per cent GST is levied on the construction of a complex, building, or civil structure intended for sale to a buyer, wholly or partly. However, land and other immovable property, have been exempted from GST.
On demonetisation, Jaitley said it was a ‘fundamental reform’, which was necessary to transform India into a more tax-compliant society. “If you see the long-term impact of it, demonetisation brought in more digitised transactions and expanded the individual tax base. It compressed the cash currency by three per cent, which was operating in the market,” Jaitley said. “Those objectives are for the long-term. No doubt, there are short-term challenges, but these are necessary for transforming India from a non-compliant to a more compliant society,” he said.
The finance minister pointed out that India had historically been one of the least efficient tax systems in the world, with an extremely small tax base. “In the last few years, the bulk of the increase in tax payers has not been in terms of the number of companies but individuals who are coming into the tax net,” he said, adding that through demonetisation, the government was able to trace out about 1.8 million people, whose deposits are disproportionate to their normal incomes.