GST Impact on infrastructure sector
GST Impact on infrastructure sector
Infrastructure is the backbone of Indian economy. The government has been making efforts to boost the sector through various schemes and incentives. Total infrastructure spending is expected to be about 10% of GDP in the current 12 year plan. Given this, the recent introduction of the goods and services tax (GST) could have significant impact on infrastructure. Let us see how
GST is expected to bring in predictability for infrastructure projects, something which was missing in the pre GST era. There are some changes that would have an impact on indirect taxation—taxability of works contracts being one.
WORK CONTRACTS - Earlier, a lot of tussle used to happen between Central and state indirect tax authorities regarding valuation of goods and services in works contracts, but now it will be a thing of past since GST has specifically made clear that work contracts will be treated as supply of services.
On the other hand, contracts like turnkey projects which do not result in immovable property could be regarded as composite supplies.
RATE – GST council has decided to keep a flat rate of 18% . It is being speculated that a high rate would lead to increased burden on infrastructure projects. However, availability of input tax credits would neutralize such concerns.
SUPPORTING SUB SECTORS –
POWER - Power is an important component of infrastructure. Electricity being outside the purview of GST, power generation companies would continue to have indirect taxes as a significant cost factor. Further, an increase in services tax and withdrawal of exemptions and concessions for power projects is expected to have an adverse impact on infrastructure sector.
ROAD, WATER SUPPLY AND SEWERAGE PROJECTS – Withdrawal of exemptions for these projcts would lead to an increase in the cost factor. However, availability of higher pool of input tax credit in the hands of the contractors could help neutralize such increases
CONCLUSION – For project owners, Credit restrictions on works contracts resulting in an immovable property coupled with increase in GST rates could increase cost outlay.
Already, exemptions and concessions to infrastructure have been completely withdrawn. This could also lead to increased working capital requirements.
Project cost could rise due to increased burden of indirect taxes.
So introduction of GST seems to be a mixed bag for the infra sector—predictability and efficiency being the key advantages, while non-inclusion of sub-sectors, higher rate and certain restrictions are negatives.
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