Band-aid solution

“Steady on” (October 18) is a timely warning to the government to desist from subsuming all real estate taxes in the goods and services tax (GST) regime. It would again be a band aid solution. The real estate requires robust all-encompassing reforms. Let us not forget that it is one of the biggest employers in the private sector, and that the biggest stake holders is the unorganised labour force and customers who have virtually no rights to speak of.

The first reform should be in the field of abolishing the booking system and only allowing sales of flats after completion and sanction of completion certificate. This is the way real estate operates worldwide. Moreover, in the bargain the flats would become “goods” and no constitutional complication shall arise. The system of booking and stage collection of sales proceeds has created complications in the accounting system and has been facilitating fraud by allowing walking away with the customers’ money or selling one flat to several customers or delaying delivery by collecting money from customers. On top of it the customer is being forced to pay interest on the loan during the construction period. This should be the central theme of real estate reforms. This would eliminate all the small unscrupulous developers who do business with customer money while the buyers effectively pay interest on building loan which is nothing but interest on the working capital of the developer. This will also help the customer in seeing what she is getting rather than relying on the ethical standards of a developer.

Second, the present system of collecting unrealistic stamp duty based on its valuation has reached a stage where the government has resorted to kite flying operations. There is a plethora of examples where the developers are struggling to sell flats at half the rates of the stamp duty valuations. State governments are keeping the rates on valuations at around eight per cent and increasing circle rates to collect stamp duty, which is adding to the cost of flats and burdening middle-class buyers. Also, draconian sections in the income tax have been inserted on the basis of stamp duty valuations. Section 45CA, 50C and 56(3)(vii) of the Income Tax Act vitiates the transactions both for the buyer and seller. All the Sections are relying on stamp duty valuations which differ widely. Such central taxation on the basis of state government valuation differentiates between taxpayers from state to state. The GST should be on the declared value and not on stamp duty valuations. In order to curb black money transaction, the government can offer these flats to to specially formed companies when it suspects that the flats are being sold at rates lower than 20 per cent of the market value. We should have specially formed entities like asset reconstruction companies that can buy these flats at higher rates and resell them. This can open a new business avenue to the firms and give better sale price to the seller. In the bargain the government will collect better GST and income tax.

Third, real estate is served largely by unorganised labour that has bare minimum rights and facilities. The developer avoids commitments towards the labour since they are all temporary. The convenient route of contractor and sub-contractor is resorted to in order to avoid any labour related liability. When we have bigger corporate builders, the government can ensure labour rights by securing bank guarantees from developers for every project as a percentage of the project cost. This will protect the rights of the labour.

Without these comprehensive reforms, the band aid solution of GST inclusion and relying on a plethora of laws will only enrich the legal fraternity without any benefit accruing to the customers or workers.

Deba Pratim Ghatak   Duragapur

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