Odisha to hunt evaders of works contract tax in realty sector

The Commercial tax wing of the state government has ordered its officers to identify real estate developers, who do not deduct works contract tax (WCT) from contractor's fee, as part of its drive to boost revenue collections.

"There is good potential to harness tax from the real estate sector. Systematic investigation into the business activities of builders and assessment of tax liability can plug evasion of VAT in this sector," said a minute paper of the meeting on boosting revenue that was chaired by Commissioner of Commercial Tax earlier this month.

"Many builders are engaging contractors in construction activities. However, excepting 2 to 3 builders, WCT deduction at source is not being ensured by such builders. Extensive survey may be undertaken as to whether WCT deduction is being made at source as per OVAT act and the deducted tax is timely credited to government account," the commissioner suggested in the meeting that was attended by senior officials of the department.
 

The move to tax real estate developers for entering into contracts with construction firms is stemmed from the September 2013 ruling by Supreme Court, which had directed that states have the power to levy value-added tax (VAT) on such contracts.

While hearing a case of L&T vs State of Karnataka, the top court had said that any agreement to sell immovable property entered into prior to construction would fall within the purview of the term 'works contract' and hence, is liable to be taxed under VAT act.

Real estate developers said, though the state government is now empowered to levy the tax after the SC ruling, it will have to amend rules regarding such provision.

"Required amendments must be made in OVAT Act and specific rates has to be fixed in simplified manner so that the amount can be paid by builders," said Sanjay Kumar Jha, secretary of the Real Estate Developers Association of Odisha (REDA).

However, they were apprehensive that the government may impose the tax retrospectively and demanded that it should be collected on current projects.

"We are ready to pay the tax, but the government should collect it for ongoing and upcoming projects. It must not be levied on completed projects. There should be a clear cut guideline (for collection of WCT)," said D S Tripathy, joint secretary of Confederation of Real Estate Developers' Associations of India (CREDAI).