Clear tax confusion on civic deals, contractors tell govt

By Times Of India on 31 Aug 2017
BENGALURU: Contractors who bag corporation tenders are in a muddle over the goods and service tax (GST) as BBMP has assumed all civic services are expemt from the tax. According to GST law, services provided by civic bodies, including solid waste management, are exempt from tax. However, the law does not specify tax exemption for goods and services used by a contractor providing the service to BBMP.

For instance, a garbage contractor need not pay GST on the payment he gets from BBMP for the service he provides, but he has to pay 18% tax if he hires vehicles for cleaning work.

Experts say Kar nataka government must now prevail on the GST council to get tax exemption for sub-contractors providing municipal services such as solid waste management. "Any civic service provided on behalf of Bruhat Bengaluru Mahanagara Palike (BBMP) is exempt from GST. There is no tax on the payment he gets from BBMP or salary he pays to his employees. However, he has to pay tax on goods or service he purchases from a sub-contractor," said M Vinod Kumar, principal chief commissioner, central board of excise and customs (CEBC).

This has led to confusion among BBMP officials and contractors, and the latter are demanding that the government clarify the issue. "If it is not set right now, there will be greater confusion in future.Our demand is that all services linked to cleaning contracts be exempt from tax," said S N Balasubramanyam, secretary of Garbage Cleaning Contractors' Association.

The state government can't decide on GST exemption and the Centre has to make a call."The state government has to write to the GST council seeking clarification on the tax structure on civic contracts and sub-contracts," said D P Nagendra Kumar, principal commissioner of CBEC.

Officials in the state finance department said the government has set in motion the process to settle the matter. "We will discuss it with the BBMP commissioner and find a way out. We will write to the GST council if needed," said ISN Prasad, additional chief secretary (finance).

The GST council is slated to meet on September 9 in Hyderabad. Karnataka, represented by agriculture minister Krishna Byre Gowda, is expected to raise the issue of solid waste management and demand tax exemption.

Experts said it is better to tax all services, including solid waste management, if subcontracts cannot be exempted. "It is unfair to tax the sub-contract while the main contract is not taxed," said R G Muralidhar, a GST expert. "Since there would be no output tax, a contractor cannot get input tax credit on the tax paid on the sub-contract and he ends up losing his profit margin. The possible solution is to tax the main contract too so that the contractor can avail the input tax credit, or exempt the entire process from GST," he pointed out.

Service tax muddle

Confusion over pending service tax led to garbage contractors in Bengaluru refusing to clear garbage for two days. CBEC officials started issuing notices to contractors to settle service tax dues for June 1, 2014 to June 30, 2017. As per the previous service tax rules, a contractor has to pay 12.5 % service tax, 2.5% cess and compounding penalty on the amount due.

Since GST was introduced, CBEC sent out notices to close old service tax accounts."Around 34 contractors received notices and the amount is so huge that no contractor can afford it," said S N Balasubramanyam, secretary of Garbage Cleaning Contractors' Association. "The assumption that there is no tax on garbage cleaning contracts has been turned out to be false. The government should get a clarification from the Centre."