Local Body Tax on Construction: Case of Mumbai
The BMC recently has been the cause of much public despair and angst, for considering a proposal that would bring construction activity under the purview of local body tax (LBT). The recently introduced Local Body Tax (LBT) in Maharashtra empowers the local civil body to levy taxes on traders for importing goods into the city. Furthermore, BMC’s proposal of charging LBT from builders on per square meter basis could drastically increase the property prices in the city further. This has lead to a surge of anger among the community of traders translating in a strike, with majority of shops including kirana stores and chemists remaining closed for business transactions in Mumbai.
According to the proposal, LBT would be charged at Rs 100 per sq m. for every floor up to four stories; a building without an elevator would be required to pay Rs 150 per sq m up to the seventh floor, beyond which LBT will be Rs 200 per sq m. Although in its nascent stage, the proposal does not provide any specific mandate for tax builders, but there is an option to amend LBT rules. Senior BMC officials are calling for suggestions from various organizations, especially the construction industry
In consonance with the leading experts in the field of indirect taxes, the proposed idea of imposing LBT on constructions could gradually evolve into a mechanism for simplifying tax calculations, as construction raw materials like cement and sand are in any case usually imported. Hence, instead of taxing each and every solitary consignment, BMC could directly tax the end product. However, BMC will have to straighten out the concept in order to avoid double taxation in cases where the developers purchase raw materials locally from a company importing them.
Despite being deprived of any regulatory mandate from BMC regarding the proposal, construction companies and builders have already began antagonistically campaigning against the move. Multiple taxes have gradually been driving property prices upward. A growing multitude of property developers and builders feel that the new tax along with existing fungible FSI and development charges would add to the existing burden on the real estate industry; as the costs would ultimately be passed on to the end user.
A consortium of real estate developers agrees that the government beyond a specified point should not levy additional taxes. Doing so would make it very hard for the common man to enjoy affordable housing. Real estate rating and research firms to believe that the increment in taxes would offset whatever little incentive the real estate sector has to remain in business. The platted organisation of traders, which is leading the indefinite strike against the introduction of the local body tax, has given an ultimatum of seven days for the government to resolve the dispute.
On the flip side, Mumbai has been witnessing a sharp appreciation of property prices in the last four years. South Mumbai, as compared to other locality has had lower appreciation compared to other locality in Mumbai. The dominant reason being the limited supply of ‘clear’ land. The secondary reason being the reduction of new launches during this period. The ever-changing construction norms brought in place by the civic body through new Development Control Rules (DCR) has also been attributed as one of the reasons for the price rise.
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Affordable Housing, BMC, Development Control Rules, Floor Space Index, local body tax, Mumbai, Mumbai real estate, Properties in Mumbai, Property price in mumbai, Real Estate Developers
