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Is GST going to be the next casualty of note ban?

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Modi’s shock decision to scrap 86% of the cash in circulation, in a bid to purge the economy of illicit “black money”, has caused huge disruption.

NEW DELHI: Prime Minister Narendra Modi’s crackdown on the cash economy has shattered the consensus needed for a new national sales tax, GST, plunging his boldest reform into limbo and threatening to entrench an economic slowdown.

Modi’s government already had its work cut out to finalise a deal with 29 states to launch a Goods and Services Tax (GST) on April 1 that would transform Asia’s third largest economy into a single market for the first time.

But his decision to scrap 86 per cent of the cash in circulation, in a bid to purge the economy of illicit “black money”, has caused huge disruption.

A slump in business activity stemming from the cash crunch has caused the revenue of state governments, which collect value-added tax on goods and other duties, to slump by 25-40 per cent.

The states won’t risk another setback by rushing the sales tax into force.

“The investment and economic environment in the country is in bad shape,” said West Bengal Finance Minister Amit Mitra, who earlier head a panel tasked with building a consensus on the GST. “How is the country going to absorb the dual shock of GST and demonetisation?”

The GST is India’s biggest tax overhaul since independence in 1947. It would replace a plethora of federal and state levies with one tax, easing compliance, broadening the revenue base and boosting productivity.

It took Modi more than two years to forge a political compromise on the tax in August. Now, demonetisation “has created a trust deficit,” said Kerala Finance Minister T.M. Thomas Isaac. “After this, I am not going to sit and compromise. They don’t deserve it.”

LEFT IN THE LURCH

Failure to break the deadlock could tip India into a fiscal crisis: The GST would need to come into effect by mid-September, when the old system of indirect taxation is due to lapse.

The lingering uncertainty is worrying companies needing to understand financial implications of the new tax.

“With so many vital details still missing, they are feeling left in the lurch,” said Saloni Roy, a senior director at Deloitte.

Modi’s shock move last month to scrap 500 and 1,000 rupee notes was aimed at India’s shadow economy. But the ensuing cash crunch has caused job losses, disrupted supply chains and slowed construction activity.

With cash shortages showing no signs of abating, some economists are calling for emergency stimulus to cushion the economy against the impact of demonetisation.

Ambit Capital, a Mumbai brokerage, forecasts growth this fiscal year will be only half of the roughly 7 percent level many expect. The Reserve Bank of India has shaved its growth outlook by half a percentage point to 7.1 percent.

To make up for their losses, states are seeking compensation and will press their case at a meeting in New Delhi on Thursday and Friday with Finance Minister Arun Jaitley.

He has already agreed to cover states’ revenue losses for five years after the GST’s launch, but further concessions would narrow his room for manoeuvre in his annual budget presented in February.

One top finance ministry official dismissed demands for compensation for demonetisation as unreasonable. But states are adamant. “They have brought it upon us,” V. Narayanasamy, chief minister of Puducherry, told Reuters. “Now they must pay for our loss.”

COUNTING COSTS

The quibble is not just over lost revenue. Some states worry about the social and political costs of demonetisation.

Take Kerala, where credit cooperatives that farmers and retired government workers rely on cannot swap old bills or issue fresh notes. The state alleges
this has encouraged commercial banks to scout for their deposits, sparking a “run” on them.

Odhisa’s chief minister has written to Modi, saying curbs imposed on primary agriculture societies were making it difficult for farmers to access crop loans and procurement payments.

With the states smarting, they have hardened their stance on how to collect the new GST, which will have federal and state elements.

They want sole control over businesses with annual turnover of Rs 15 million ($220,000) and so-called “dual control” over bigger firms. Jaitley opposes this, fearing tax collectors could end up at cross purposes.

“We reached this far because states were willing to compromise,” said Isaac, Kerala’s finance minister, told Reuters. “If they want the GST, they will have to now concede to the states.”

Source Economictimes

Regulations

373 Maharashtra Cities To Fall Under PMAY Scheme

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The state of Maharashtra has added 232 cities to the existing 142 which makes it 373 cities under the Pradhan Mantri Awas Yojana Scheme (PMAY).

The officials at the housing department feel that this step will aid the government take up more projects under the PMAY scheme.

Sachin Kulkarni, Builder shared his concerns over the lack of coordination between the department in executing PMAY projects. He said, “This is a good sign. However, the PMO’s seriousness in promoting HFA is diluted by the time it reaches the authorities. Apart from collecting application from interested beneficiaries, nothing has moved on the ground in urban centres. I hope that this initiative moves on fast track”.

Maharashtra CM Devendra Fadnavis recently states that the in order to create more housing stock the state’s Slum Rehabilitation Authority scheme be brought under PMAY so that it can receive the subsidy to create more affordable housing. He clearly mentioned that the government intends to create more housing stock and it was taking various initiatives and making policy changes for it.

Also Read- Affordable Housing To Get A Boost With PMAY’s Scope To Be Extended To Private Lands

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Real Estate Sector May Fall Under GST What Does It Mean For Buyers?

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One after the other the real estate sector has witnessed massive policy and law changes in its systems. Nonetheless, the tide has not passed yet. The GST council will take up a proposal to bring it under the uniform nationwide levy.

As the industry is still recovering from the RERA Act, the finance minister, Arun Jaitley said that there is a strong case to include real estate in the new indirect tax regime. He said this last week and also mentioned that GST Council will discuss it in November.

At present, the home buyers are paying 12 percent GST on under-construction properties. This percentage includes two taxes which are stamp duty and registration. The rate of which varies in each state but GST will make them uniform.

Santosh Dalvi, KPMG India partner (indirect tax) said, “If the entire real estate is brought under GST, they would have to abolish the stamp duty and we don’t know how the government plans to compensate the states for their loss.”

The stamp duty with registration and GST comes to approximately 18 percent for under construction properties. He further said, “So, it’s important to look at what rate it will be taxed at. We can then look at consumer prices”.

While agreeing, Bipin Sapra, EY partner (indirect tax), added, “It’s going to be a test for the government”.

Developers also pay taxes on raw materials. However, unlike other businesses, they don’t get any tax refunds through input credit. GST taxes every stage of the business activity to better compliance and compensates for it by permitting refunds.

Anuj Puri, Anarock Property Consultants chairman, said “By including real estate under GST, builders can get a fair amount of input credit, helping bring down costs,” He added that it would make homes cheaper for buyers.

According to Sapra, it will depend on the tax rate applicable.

Niranjan Hiranandani, co-founder of Hiranandani Group said, “Real estate under GST ambit means consumers will only have to pay one final tax.” He stated that with the commencement of RERA it brings transparency and GST would reduce the burden in terms of taxes payable while buying the home. He concluded, “Not only will this create positive sentiment but it should also boost actual sales”.

Also Read: Affordable Housing Is The Changing Face Of Indian Real Estate

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Home Buyers Will Be Covered Against Builders Who Are Going Bankrupt

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In a move to protect home buyers from builders declaring their bankruptcy, the Insolvency & Bankruptcy Board of India (IBBI) has amended rules which make it necessary for any company to showcase how they have dealt with interests of all stakeholders. This is directed towards companies like Jaypee Infratech and some of the entities of Amrapali Group.

The regulator has informed about the revised rules last week. This will ensure that banks and other creditors do not get away by protecting their interests at the expense of others who are impacted by the action.  Banks are part of the creditors’ committee. They become an important decision-making body after a company is admitted for bankruptcy.

An expert bankruptcy lawyer said, “The change in the rules has plugged a gap as flat buyers are of the view that there is nothing to protect their interests.”

According to the new law that was enacted last year intends to speed up the resolution process in a period of 180 days, with a possible extension of 90 days. This will be done by appointing insolvency resolution professionals who will take charge of the company’s operations and prepare a plan. As per the law, an information memorandum will be finalized if the creditor’s committee is willing to take applications from other interested companies to take over the company.

The insolvency experts say that the law providing for the plan binds corporate debtor (the company) and its members, employees, guarantors, and creditors, other stakeholders involved in the resolution plan. However, there are no obligations mentioned in the rule to give any treatment to the stakeholders other than the financial creditors (banks) and operational creditors, which includes vendors and others who may have dues.

The National Company Law Tribunal, based on the comfort provided by the revised rules, will choose the final resolution plan based on bids that are received. The lawyer further said, “The tribunal will not clear the resolution plan without giving notice to all stakeholders and the flat buyers can raise objections at that point of time.”

Also Read: Tanvi Group Fail To Deliver Homes And Declare Bankruptcy

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