Proposal to levy VAT on realtors spreads panic

Haryana government's proposal to bring real estate developers under the ambit of Value Added Tax (VAT) has thrown buyers and builders into a tizzy. Deevakar Anand reports.

Haryana government's proposal to bring real estate developers under the ambit of Value Added Tax (VAT) has thrown buyers and builders into a tizzy.

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During a press conference in Chandigarh on Tuesday, state excise and taxation minister, Kiran Choudhry, told reporters that a survey is being conducted "to bring developers, joint developers, promoters and builders under ambit of the Value Added Tax Act, 2003".

While buyers fear the additional tax, if approved, will be passed on to them, builders are worried about slower sales in a recession-hit market.

According to the state government's proposal, builders will be liable to be registered under the Act with the excise and taxation department and pay a prescribed 4% VAT on the contract value of a project. However, no VAT will be applicable on built-up flats and buildings.

Shveta Jain, executive director, residential services, Cushman and Wakefield, said such a proposal is expected to create an upward pressure on prices across Haryana, especially cities like Gurgaon, Sonepat and Faridabad which are part of the national capital region (NCR).

"In states such as Maharashtra, where VAT has been imposed on developers, the tax was passed on to buyers as added cost," she said.

The director-general of the Federation of Apartment Owners Association of India, Amit Jain, said, "It's obvious that the extra burden will be passed on to buyers. Before formulating such a policy, the government should take us into confidence and work out a rational VAT policy, if any, keeping in mind buyers' concerns."

On the other hand, Navin M Raheja, managing director of Raheja Developers and president of the National Real Estate Development Council (NAREDCO), expressed concerns that the proposal has come at a time when off-take in the sale of properties is low and this kind of announcement may discourage prospective buyers.

Urging the government to put on hold its decision, Raheja said, "The state should hold an open discussion with real estate leaders and note their points of view before taking any such decision."