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Exclude land value from service tax: ICAI

The entity has argued that a tax on transfer of land should be a State subject

The Institute of Chartered Accountants of India (ICAI) has called for excluding land value from the proposed service tax on the realty sector, saying land is a State subject, reports PTI.

“When a prospective buyer makes an advance payment to the builder against booking of a specified unit in a building, that part also includes a price towards the land on which the building is being constructed and treating the entire amount being paid by the prospective buyer to the builder would amount to imposing a tax on transfer of land which is a State subject,” ICAI said.

The Budget proposes to bring the realty sector, including new residential properties under the service tax net.

In its post-Budget recommendation on indirect tax, the ICAI suggested that the value of land based on municipal valuation be excluded from the payments made by the buyer as the “intention cannot be to tax the value of the land or the appreciation in the value of the land.”

Finance minister Pranab Mukherjee has brought construction of real-estate complexes under the ambit of service tax unless the entire consideration for the property is paid after completion of construction.

“In the construction of complex services, it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after receipt of completion certificate from the competent authority), the activity of construction would be deemed to be a taxable service,” said the Budget proposal.

A complex has been defined as buildings consisting of more than 12 residential units.

Finance ministry officials later clarified that service tax of 10.3% would be imposed on 33% of the selling price of the property, which effectively means about 3.5% of the total cost of the property.

Last week, CREDAI—an apex body for realtors—said that it will consider taking the government to court if its demand for excluding land cost from the proposed service tax on real estate complexes under construction is not met.

Not only developers, even the urban development ministry said it would soon approach the finance ministry seeking a review of the proposed service tax on the real estate sector as it feels the levy will hurt the sector, which is yet to recover from the global economic recession.
 

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Venture capital and joint venture investments likely in reverse logistics

With Reliance Venture Asset Management recently funding the reverse logistics service provider RLC Pvt Ltd, experts say that more investments in the form of joint ventures and venture capital could take place in this sector

With Reliance Venture Asset Management pumping in funds into RLC Ltd, a supply-chain management company focusing on end-to-end reverse logistics solutions, more investments in the form of venture capital and joint ventures are likely in this segment, say industry experts.

Reliance Venture Asset Management, Kleiner Perkins Caufield & Byers, and Sherpalo Ventures had recently channelized funds into RLC. A few media reports have pegged this investment at Rs35 crore, but RLC is not ready to confirm this figure.

Commenting on Reliance Venture funding RLC, Vijay Sarma, associate director, PricewaterhouseCoopers Ltd stated, “The deal has attracted attention from a lot of people (investors) in the reverse logistics segment. Certainly it (reverse logistics) is an area of opportunity.”

“However, whether this funding happens to standalone companies in the reverse logistics segment or to logistics companies bundled with reverse logistics services as one segment, is something we need to look at closely,” he added.

“The entire concept of reverse logistics being outsourced is relatively new in India. International companies who have been practising reverse logistics globally in the consumer durables, telecom and auto sector, now want to outsource their activities to India as well. It is a sunrise sector within the logistics segment. I think as the reverse logistics segment opens up and lot of new players enter this market, a number of international players would like to have more and more of these operations. I definitely see a good opportunity emerging in this sector,” said Ashit Desai, director, corporate affairs, Allcargo Global Logistics Ltd.

Mr Desai added, “The investment will depend on the players. If multinational players dominate this segment in India, then they may look for funding. But more home-grown companies, who want to take on this role, would definitely look for venture capital funding as it is a relatively new segment in this industry.”

Mr Desai also spoke about a new model that seems to be emerging in this segment in the near future. “One of the models that I can see emerging is Indian players forming joint ventures with foreign players in the reverse logistics segment. Joint ventures then could from a large area of investment (rather) than venture capital,” he said.

“Allcargo may not focus on reverse logistics at present. We may look at it only after a couple of years,” he added.

Commenting on the investments in the reverse logistics segment, Hitendra Chaturvedi, managing director & CEO, RLC Pvt Ltd, added, “When we started looking for funding in 2008, we were told we are not an Internet company and not an area of interest. However, investors have now realised that this ‘boring’ bread-and-butter business (reverse logistics) is a better option than going along with the herd mentality of funding Internet and mobile companies.”

Mr Chaturvedi said that the reverse logistics segment is worth a market size of around $10 billion-$15 billion. Commenting on the response that this segment has attracted in terms of business, he added, “Every company that we go and talk to is interested in reverse logistics technology. A study conducted states that around 57% of all Indian companies will go for the reverse logistics system in the next five to six years.”

“Logistics generally is a field of interest; within that, reverse logistics is however not a field people were looking at, a number of years back. But, with the Reliance deal, I think now a lot of people will start looking at the segment,” added Mr Sarma.

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COMMENTS

ajay

7 years ago

Few lines explaining the concept of Reverse Logistics would have helped appreciate the news article.

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