BMC proposal for LBT on builders raises hackles

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PROPERTY prices in the city could go up further, with BMC considering a proposal to bring construction activity under the purview of local body tax (LBT). BMC proposes to charge LBT from builders on per square metre basis.

As per the proposal, for every floor up to four storeys, LBT will be Rs 100 per sq m. For a building without an elevator, it will be Rs 150 per sq m up to seven floors. Beyond seven floors, LBT will be Rs 200 per sq m. "The proposal is at a nascent stage. We will call for suggestions from organisations, including the construction industry. There is no specific mandate to tax builders as of now, but there is an option to amend LBT rules," a senior BMC official said.

Santosh Dalvi, partner at KPMG and indirect tax expert, said levying LBT on constructions could be a mechanism to simplify tax calculation.

"Builders anyway import raw material such as cement and sand. So, instead of taxing every individual consignment, BMC is looking at taxing the end product," said Dalvi. BMC will, however, have to iron out the concept to avoid double taxation in case developers are purchasing raw material locally from a company importing them.

Construction companies are yet to hear from BMC on the proposal, but builders have started opposing the move. They contend that multiple taxes have pushed up property prices. "We pay for fungible FSI and development charges. This new tax will put more burden on the real estate industry. It will ultimately be passed on to the consumer," said Mayur Shah, managing director, Marathon Group, a developer.

Vimal Shah, managing director, Hubtown (earlier known as Ackruti Developers), agreed that the government should draw a line beyond which it should not tax the real estate industry. "This is a crucial concern if the government wants affordable housing for the common man," said Shah.

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