Service tax levy on property counterproductive: DLF

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Service tax levy on property counterproductive: DLF

Ashok Tyagi, Group CFO, DLF says the real estate sector already pays a 13-16% indirect tax, and with service tax added on, this will rise to 19 percent. He says introduction of service tax on immovable property is a counter-productive move.

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Excerpts from Reporter's Diary on CNBC-TV18 Watch the full show » RELATED NEWS Government official: No service tax breaks for realty No service tax on outright home purchase: Revenue Dept Service Tax: Housing Blow? Service tax levy on rentals in Budget shocks retailers Pay more to buy your dream home post Budget ALSO READ See latest News about DLF See previous management interviews See what other Experts & Brokerages are saying about DLF DLF BSE | NSE 29/05/12 Are Mutual Funds betting on DLF?

With Friday's Budget announcement clarifying that realty developers must pay service tax on payments made to them during the period of construction, a move which the developers said would raise home prices and crimp demand, there is increasing clamour from the sector to seek a meeting with the finance minister and raise their concerns.

Ashok Tyagi, Group CFO, DLF says the real estate sector already pays a 13-16% indirect tax, and with service tax added on, this will rise to 19 percent. He says introduction of service tax on immovable property is a counter-productive move.

Speaking to CNBC-TV18, he said the total quantum of indirect taxes that DLF as a developer pays or incurs is about 14-16% if we include the stamp duty and various forms of excise duty, VAT, Works contract tax, service tax. He added, "Close to 3% plus is an additional levy on the sale of an apartment that means in the hands of anyone buying a house today it would end up costing about 3% higher than what it would have cost before this levy was put, which almost puts it up to very high teens which again goes on the grain of making housing to the average house owner." He says we should be seeing a net increase of 3-4% on account of the indirect taxation in the Budget, as the increase in the final landed price of the product.

He said at a time when the sector is just coming out of recession and when the government seems to be encouraging the affordable housing sector, a 3% increase in duty goes against that argument.

On the issue of service tax levy on preferential location charges, he says the idea looks far fetched as preferential location charge is not a service but a premium that one is charging for a particular located product.