The love of theory can sometimes lead to a retrograde situation. While the goods and services tax (GST) is closer to finalisation, there is a fresh proposal from some theoreticians to include immovable property in the tax base. It has been argued that if GST includes real estate, then it will be a more comprehensive tax structure and will bring about greater transparency and less evasion. I am writing to say that it is neither economically rational nor practically desirable from several points of view. I shall discuss each ground separately below.

a) Immovable property is neither goods nor services. Immovable property has been separately defined in the General Clauses Act, 1897 at section 3 (27) as the following: "(26) immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth". That is not the same as goods in excise and sales tax where it is moveable goods. In common parlance, the idea of goods is that it is movable goods and not immovable property. Finally, the expression "goods" in the Entry 84 of List I and Entry 54 of List II of the Constitution also refers to moveable goods. Therefore, the present structure of GST does not allow immoveable property to be included according to the Constitution. There is no rational justification to squeeze in a definition which is not only against the definition of goods in excise and sales tax, but also against the definition in common parlance and the Constitution.

b) It is said that inclusion of real estate will bring a better audit trail and enable government to check black money since the buyers and builders will insist on invoice for the respective purchases. Invoice will be necessary for taking input credit. This argument is not correct. Those who have idea about transactions in real estate know very well that invoices will still continue at a lower rate and cash payment be side-by-side with invoice. If evasion can continue with present GST, it will also continue after real estate is included.

c) It is already a value-added tax. Stamp duty, registration fee and capital gains tax are calculated on value of land and property which are sold with a higher value, anyway. Those who do not agree with this argument say that even if these taxes are charged, GST can be charged on the same analogy that while all transactions (goods, services and sales) are subject to income tax, they are also charged to GST. This is a complete misunderstanding of the nature of tax. Income tax is not charged on the goods, services or sales for which the taxable events are act of manufacture, act of providing service and act of sale. So excise duty, service tax and sales tax are charged on them and not income tax. For income tax, the taxable event is the generation of income, which is completely different from the taxable events for goods, services and sales. It is not a fact that all transactions are charged to income tax as well as GST.

d) It is said that Australia, Canada, Singapore and New Zealand have introduced this. But the fact is that the majority of countries have not.

e) The proposition that incremental revenue from taxation of land will help in keeping the GST revenue-neutral rate low, is wrong. Since the revenue from real estate has to be generated, the final rate might even be higher.

f) Constitutional amendments will be a big hurdle. (a) Entries 63, 18 and 49 of the State List would have to be amended and brought to the Concurrent List. (b) Entry 84 of List I and 54 of List II also have to be amended.

So many amendments will create tremendous strife between the Centre and the states since it will upset the balance of federalism and cause injury to the fundamental structure of the Constitution. It will be impracticable to introduce such a sweeping change in the Constitution.

Therefore, any proposal to include immovable property in the design of GST should be rejected in limine.