With the sales tax department and developers continuing to spar over the quantum of Value-Added Tax (VAT) leviable, the Bombay Chartered Accountants Society (BCAS) has urged the state government to levy a uniform 1% tax on buyers who purchased flats between 2006 and 2010, and those after 2010.
The reason: It is almost impossible to calculate VAT accurately for under-construction properties as there is no single way to calculate the liability.
According to rules in Maharashtra, tax is payable by a dealer on the sale price of goods, at such a rate of tax. And the dealer is entitled to claim input tax credit or setoff of taxes paid on his purchases. The liability to pay tax arises on a periodic basis, that is monthly, quarterly or six monthly.
"The difficulty arises as building construction does not complete for years. Developers usually then collect the sale price in instalments. From this sale price collected, deductions have to be done to arrive at the taxable sale value of goods involved in the execution of the 'works contract'. Considering the liability arises periodically, it is impossible to calculate VAT for each and every agreement for a monthly, quarterly or six-month period,'' said Deepak Shah, president, BCAS.
A developer pointed out that his office has been thrown into administrative chaos because of the rule. "I have a customer base of over 12,000. Can you imagine the thousands of agreements I will have to draw up every quarter or six months to satisfy the tax authorities?'' he said.
Developers pointed out that although it is possible to work out the amount of tax payable on the entire project, which may spread over two to five years, the sales tax department will ask for payment of tax as per the periodicity commencing from the date of the beginning of the project.
According to BCAS, a question of dispute between the sales tax department and builder is whether the value of undivided share in land is to be reduced from the first few installments (and other reductions in subsequent installments), thus there will be no tax payable on the first few installments covering the value of land.
"In case of normal construction contracts (not involving transfer of undivided share in land), it is possible to work out the tax liability on the basis of a certificate provided by a competent person; but, in case of sale of under-construction flats (where value of land forms part of the total sale price), it may not be possible,'' said Shah.
"As far as reduction on account of the amount paid to the sub-contractor is concerned, it may be permitted on the basis of certification, but, if entire amount is received before construction is completed, a dispute will arise regarding reduction for amount payable to the sub-contractor after work is completed,'' said Shah.
Builders and developers said they would pass on the liability of paying the tax to buyers, news agencies reported. "VAT will have to be borne by customers... along with expenses of registration and stamp duty," CREDAI secretary Kishor Pate said.
'Don't pay value-added tax'
A newly-formed consumer group, which has the support of the Council for Fair Business Practices (CFBP), a body headed by industrialist Rahul Bajaj, has appealed to buyers not to pay the Value-Added Tax (VAT), being demanded by developers for fl ats purchased between 2006 and 2010. Over 10 lakh properties are said to have been registered across Maharashtra during this period. Foram (Flat Owners Rights Protection Action Committee in Maharashtra) has been set up to mobilize public opinion against the government's decision on VAT. Atul Puranik, a graphic artist associated with CFBP, and Chandrashekhar Soman, a senior member of the Shiv Sena's consumer protection forum, are its only members. "We have talking to social and consumer groups and are appealing to affected flat buyers to come under our banner so pressure can be exerted on the government against levying the additional burden on us.
Many buyers have been caught unawares,'' said Puranik. Depending on support from affected buyers, the group may seek legal recourse. The group however, has yet to study how VAT is computed. They were unclear as to whether the levy actually works out to 0.5-3 %, as clarifi ed by the government, or over 5%, as demanded by developers.
VAT rules should have been simple
The apprehensions, of buyers being taken for a ride, are not unjustified . The government should have kept a uniform value-added tax instead of breaking it up into different categories. This may leave room for manipulation by both property sellers and government officials. The opacity has already caused a lot of confusion and things can get only worse when people start getting the bills.