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Govt mulls Re 1/sq ft cess on commercial properties
November, 17th 2006

The government is likely to levy a cess of Re 1 per square feet on commercial properties across the nation. The finance ministry has suggested that the state government must charge this amount while approving designs of commercial properties. As a result, a prospective mall developer, constructing a 5,00,000 sqft of built-up area, will have to shell out an additional Rs 5 lakh as cess.

The finance ministrys proposal is to plough back the cess money into the countrys infrastructure development. It suggested that the fund may be used for meeting viability gap funding (VGF) requirements for core sector projects. The Centre offers VGF up to 40% for infrastructure projects such as roads, highways and metro rail transit systems under the public-private participation (PPP) model. The rest is financed by state governments and private parties.

The government intends to charge this cess on the private commercial property developers so that more funds could be pooled in VGF for infrastructure projects, said a senior government official.

This is a welcome move, provided the authorities use part of the proceeds coming from the surcharge in developing infrastructure around the malls catchment areas. A lot many commercial activities are happening in tier II and III cities in the NCR, such as Kundli, Sohna and Sonepat, which is in dire need of good infrastructure, said TDI Malls managing director Kamal Taneja.

The real estate developers feel that ultimately the charge will have to be borne by the consumers. Any such surcharge or tax is usually passed on to the consumer. Even in this case, developers will pass on the cess to retailers, who would be the end users, said Ashish Gupta, vice-chairman, Aerens Goldsouk.

According to government sources, the additional revenue will be used in create urban infrastructure around the proposed commercial developments. Arvind Singhal, chairman, KSA Technopak, however, said that the cess amount should be increased.

An additional surcharge of just Re 1 per sqft will not do much good. At best, this will net one-time additional revenue of Rs 15-20 crore, which does not suffice the requirement for urban development.

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