The infrastructure sector is considered the backbone of the Indian economy. The strongest part of the recent Union Budget was the government’s renewed thrust on investments in strengthening the country’s infrastructure. However, this sector faces certain issues under GST, which are discussed below.
Cost of input material: The sector depends on several factors such as electricity, logistics, cement and consultancies. Higher tax rate on these sectors will have an impact on the costs of construction. A higher GST rate of 28 per cent imposed upon cement would adversely impact construction cost.
Electricity is not within the ambit of GST and tax on the same is an additional burden. Revisiting the GST rates for the dependent sectors can reduce the cost for this sector.
Taxability of bonus on early completion of projects: In case of certain projects (such as construction of highways, dams) the project owner typically pays to the contractor a bonus equal to a specified percentage of the project cost if the work gets completed as per schedule or prior to the due date of completion. Such bonus payment, although a reward, is considered a part of the consideration for supply of works contract services.
Providing tax exemption on bonus will inspire the contractors.
The benefit of zero-rated supplies available to the main contractor supplying goods or services to an SEZ unit or developer is not available to sub-contractors supplying goods or services to such contractor.
This results in blockage of funds/working capital for the contractor. Extending exemption to sub-contractors shall resolve the issue of blocked funds for these contractors.
Deemed deduction of land value: The GST law does not provide for deduction of actual value of land, thereby making deduction lower in cases where the actual value exceeds the deemed deduction. Providing for actual deduction of land value can reduce costs and, thereby, give the sector a boost.
The impact of Covid-19 has been hard on businesses affected by the lockdowns. However, the lockdowns have pushed consumers towards online shopping. A small seller or a large established chain all can sell goods across India and e-commerce helped to amplify the reach. There are a few key issues that need to highlighted, though:
Higher compliance cost: Under GST, with the burden of TCS, e-commerce operators are required to undertake additional compliances in States where their suppliers are located. This significantly increases the compliance burden on e-commerce operators, as many of them have a large number of vendors.
Further, matching invoice data with those of the suppliers and deducting appropriate TCS are proving to be difficult. The mismatches are mainly due to multiple transactions occurring with a particular supplier, and communication gap between e-commerce operators and the suppliers. It is hoped the government will ease these restrictions in near future.
Registration concerns: GST law mandates e-commerce operators to get separate registrations for TCS, irrespective of whether they are already registered under GST or not. Registration for TCS is required in each State as collection of TCS is compulsory on all supplies.
E-commerce operators are in a dilemma about getting registered in States where they do not have physical presence. Since most players are discouraged to opt for marketplace model to comply with registrations in multiple States, the registration requirement needs to be relaxed.
Stock transfers between branches of a single e-commerce entity are deemed to be supplies, subject to GST. Though the tax paid is available as credit to the entity, this may result in cash flow blockages. Tax liability would arise at first stage of stock transfer, which can only be offset at the time of final supplies by the e-commerce entity. Hence, making stock transfers between branches non-taxable can fix the cash flow issues.
The government should discover the challenging areas and come out with resolutions on the issues faced so that there would be more opportunities rather than challenges and the growth of these sectors is promoted.
The writer is Founder, Rajeshree Sabnavis & Associates