New India reforms a boon for consumers and homebuyers
dubai — Two path-breaking reforms, the Goods and Services Tax (GST) and the Real Estate (Regulation and Development) Act, will have far-reaching positive implications for consumers and homebuyers in India.
The GST, the new direct tax system that the government plans to roll out from July 1, will ensure that the prices of the goods come down over a period of time, according to noted indirect tax expert.
From an economy perspective, the landmark tax reform will widen the country’s tax base and result in equitable levy of tax, says K. Vaitheeswaran, who is also a practising advocate at the Madras High Court.
After nearly 10 years of wait, the real estate act, or Rera, which has been designed to protect the rights of consumers and ensure transparency, is finally a reality when it came into effect on May 1.
Speaking to Khaleej Times during a his recent visit to Dubai, the eminent tax expert praised Dubai’s rolemodel real estate regime, and said as a game-changer, the law would transform the way real estate business is carried on in India. Rera is expected to usher in higher levels of transparency, reporting of information, identification of track record.
A win-win proposition for buyers and developers, the law would ensure benefits to genuine players while the end-user would get the benefit, he said.
Full text of the interview: How will the GST affect the common man? Can you briefly elaborate on the role it is expected to play in the Indian economy in years to come? The GST is basically a tax reform, which seeks to eliminate the existing complex multi-layered tax structure. It would bring in clarity on the amount of tax on a product or a service from a consumer perspective. Elimination of cascading effect of tax, which is nothing, but tax on tax and alteration of supply chains would ensure that the prices of the goods come down over a period of time. From an economy perspective, the GST would widen the tax base and result in equitable levy of tax. Do you think the GST will fuel inflation in the short term, and which segments of the economy will be most affected by the GST? Yes, there would be some element of inflation specifically in the price of services. Currently, India has an effective tax rate on services at 15 per cent and a reasonable compliance mechanism. Services such as telecom, insurance, banking would see a cost push and if the GST rate is, say, 18 per cent, it would increase the cost of procuring services in the B2C segment. Are there any learning for other economies in the way India is planning to roll out the GST? India has a federal structure with both the centre and state having specific powers of taxation. The GST, which India is implementing, is different given the federal structure and the inter-play of transactions amongst states. Most countries have a single GST whereas India is implementing three GSTs. However, the inter-state GST, which India is implementing, is a good model where there are transactions amongst countries, which form part of a group of countries. How much do you think will the GST contribute to the country’s total revenues every year? This would be difficult to predict or assess at this point of time but the widening of tax base and bringing in of new assesses with lower threshold limits would guarantee appropriate revenue growth to the government. Manufacturing states may lose revenues whereas consuming states would see increase in their revenues since the GST is a destination-based consumption tax. What are the final GST rate slabs, and do you expect them to change in the short to medium term? The GST Council, which is the ultimate authority on the implementation of the GST, has recommended four rates for goods: five per cent,
The Rera in Dubai is a role model for many economies in the world. Dubai has world-class infrastructure and the real estate development is phenomenal K. Vaitheeswaran, Tax expert and practising advocate at Madras High Court
12 per cent, 18 per cent and 28 per cent, apart from exemption and zero rating. Some items within the 28 per cent slab may attract an additional cess to provide for compensation to any State, which loses revenue on account of the GST. The rates for services are yet to be decided. It is unlikely that the rates would change in the short term or medium term. How will the Rera benefit the country’s real estate sector? Do you think the benefits will be passed on to end-users? The Rera will transform the way real estate business is carried on. It would usher in higher levels of transparency, reporting of information, identification of track record. The Rera would ensure benefits to serious, well-organised genuine players. The end-user would get the benefit since all critical information about a promoter would be available in the public domain. Will the Rera have a positive or negative price impact on affordable housing in India? It should have a positive impact since the norms for affordable housing are well identified and detailed information about a real estate project will have to be provided by the promoter and the project registered with the Rera before even the marketing activity can start. There is general perception that the Rera will make buyers king. Do you agree with this perception or is it more hype than substance? Currently, while many developers and promoters are organised and stick to their commitments, there are a few players who do not deliver as per commitments and many investors have no clue as to the status of the project or to obtain relief. The Rera brings in stringent provisions for compliance; mandates that more than 10 per cent of the cost cannot be taken as advance without entering into a registered agreement; has provisions to ensure that funds for a particular project are not diverted. Further, breach of the provisions of the Act results in serious penalties and in some cases even prosecution. Therefore, once the legislation and its impact settle in, the buyer would become the king. Dubai established its Rera in 2007. Do you think the two models are comparable? The Rera in Dubai is a role model for many economies in the world. Dubai has world-class infrastructure and the real estate development is phenomenal. It is a matter of record that projects are completed much before the due date and there are no issues in delivery. All this is due to a very simple but focused rules and regulations pertaining to real estate by the government of Dubai. In India, while transferability and accountability would be ensured, every state will have a separate regulatory authority. Further, the key requirement of single window approval is not ushered in through the Rera. Will the Rera prove to be a win-win situation for both buyers and investors? Is there a losing party here? Investors and buyers would gain in the medium to the long term and new investments would automatically move in towards projects where the track history is good. Some losers could be genuine developers who have project delays on account of the real estate slump in the last few years apart from the slowing down of purchases on account of demonetisation in India.
— issacjohn@khaleejtimes.com