The Indian Railways is worried that the tax treatment of work contracts in the goods and services tax (GST) regime would inflate its cost of expansion, as the contractors threaten the additional tax liability on them will reflect in contract values. With the transporter’s output tax liability limited — it pays service tax on passenger fares of about Rs5,000 crore annually, — it hasn’t got sufficient avenues for set-off of input taxes.
The tax rate for work contracts in the GST regime will be 18%, compared with an effective rate of 4% (state VAT) now. However, tax experts feel the contractor’s claim that GST would increase the tax incidence on them is exaggerated.
The taxes on whatever goods and services procured by the contractors will be fully creditable in the GST regime, while currently this facility is not available to them, they noted. All savings (because of input tax credit) will be at the hands of the contractors.
Apart from work contracts, the railways was also concerned about the prospect of its own material movement and coach repairing works attracting integrated GST on inter-state transfers. Though the GST Council on its June 11 meeting exempted repair works, the transporter’s own material movement will still attract integrated GST which it may not be able to offset. Yet, GST officials are still trying to get exemption for depot to depot transfers.