The infrastructure sector is the backbone of the Indian economy. The government has been making efforts to boost the sector through various schemes and incentives.
While there is apprehension that a flat GST rate of 18% would lead to increased incidence on infrastructure projects, availability of input tax credits would neutralize such concerns. Thus, contractors and suppliers could look forward to a simpler and efficient tax regime.
According to the government, total infrastructure spending is expected to be about 10% of GDP (gross domestic product) during the 12th Five-Year Plan (2012–17), up from 7.6% during the previous Plan.
Initiatives of the government towards Infrastructure Sector
- A total of 6,604km has been constructed out of the 15,000km target set for national highways in 2016-17.
- The Airports Authority of India plans to develop city-side infrastructure at 13 regional airports, with help from private entities for building of hotels, car parks and other facilities.
- Significant allocations have been made to power, urban development and inland waterways sectors.
Pre-GST era Of Infrastructure Sector
- Central laws provided exemptions and concessions, state VAT (value-added tax) and entry tax laws were applicable to goods procured.
- In addition, the cascading effect of Central and state indirect taxes was a concern, due to a high base for levy of respective taxes and a restrictive credit mechanism.
- There was also litigation at the Central and state levels on classification of contracts, valuation, jurisdiction of state on inter-state works contracts and other issues.
Some changes that would have an impact on indirect taxation—taxability of works contracts
- As works contracts are limited to only immovable properties, turnkey contracts which do not result in immovable property would now be treated as composite supplies.
- Further, valuation of goods and services in works contracts, which has typically sparked differences between Central and state indirect tax authorities, would now be put to rest with the legislation laying down unambiguously that works contracts would be regarded as supply of services.
- Other contracts which do not result in immovable property could be regarded as composite supplies, and depending on the principal supply, tax liability would arise either as a supply of goods or services.
Impact of GST on the Infrastructure Sector
The roadways are going to get better with GST. The interstate movement of goods will be facilitated properly. It will save the unproductive time wasted in the movement of goods. It will get smoother than ever. The National Highways which account for most of the interstate movement of goods will help. The huge tax compliance procedure will be scrapped.
Electricity and Power
The transmission of goods will be better but the electricity and power are bound to get costly. Even if there will be no GST on input, on the procurement side the levying of GST will make it costly than it currently is. It is skewed in the same direction for other sectors like mining. Currently, excise duty on most of the mining output is one levied but after the introduction of GST, this will add to costs as well. Furthermore, railways are partially taxable as of now but it may change once GST comes into force.
Cement constitutes the backbone of infrastructure sector and is bound to be improved once the GST is rolled out. It will be benefited from the reduced cost of logistics and in turn leading to falling in the prices of cement.
Aviation is about to get costly. The credit on tax paid by Airlines will not be credited to them now. The jet fuel is also going to burn the pockets of Airlines.
It can thus be said that the core of infrastructure is going to hurt. The industry which is already suffering is about to suffer a bit more after GST comes into play. It is a matter of time before we all get to know what it has in store for us.There still are many unanswered questions about the impact of GST on Infrastructure sector but the big change is coming and it’s coming soon, so be prepared for anything and everything that GST brings to your way.