Room to expand, but state stares at Rs 19,200cr tax burden on pet projects

HYDERABAD: As the country moves into a new tax era at the stroke of midnight, Telangana is caught in a Catch-22 situation over the GST regime.
On the one hand, the implementation of GST is set to open up new markets for `Made in Telangana' products and services and pave the way for a unified market.
On the flip side, the state government is staring at an additional `19,200 crore tax burden on its pet projects, which include Mission Bhagiratha, Mission Kakatiya, various irrigation and road projects, as well as the double-bedroom housing scheme.
All these projects are ongoing, with some of them nearing completion. All of them were awarded as work contracts with a condition to pay 5% Value Added Tax. But with the introduction of GST, they will attract 18% tax.
Mission Bhagaritha, which was launched in 2014 at a total projected cost of `40,000 crore, would have attracted, at the rate of 5% VAT, `2000 crore as tax that would have gone into state's coffers. But under GST regime, contractors have to cough up `7,200 crore as per the new 18% tax rate. “We can't force the contractors to pay higher tax as the project was awarded three years ago. The government has to either pay the difference or reimburse contractors,“ a senior financial department official said. With regard to the two bedroom housing project taken up at an estimated cost of `20,000 crore per year, a similar increase from 5% VAT to 18% tax becomes applicable. The programme is already facing challenges with many contractors pulling out of the scheme complaining about the rates decided by the government being unprofitable. With 18% GST, the government has to bear the additional burden of around `3,600 crore as per initial estimates.
On the construction of four irrigation projects, the TRS government planned to spend over `1lakh crore over a period of five years and had been collecting 4.5% tax. But now these projects have been included in the 18% tax slab, and contractors have clarified they will not be continuing the work until the tax rate is reduced. The irrigation department is estimated to face an additional burden of `13,000 crore.
Yet another TRS government project, `road to every village', that was allotted `20,000 crore, also falls under the 18% GST rate, as will the plan to build integrated government buildings in all districts for `10,000 crore.
“We have requested the Centre to roll back the higher tax or at least keep these public oriented projects under the 5% tax slab. But there was no response from the Centre,“ roads and buildings minister Tummala Nageswara Rao told TOI.
With regard to loss of income, the state government is clueless as many of the products being made in Telangana have been put under higher slabs and the process of input tax credit (ITC) is not yet clear.