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The Pirates of Kerala-Taxing the taxed!

The recent government order imposing additional fees and levies on the construction sector is a huge blow to the development dreams of the State of Kerala, which is already suffocating with excessive taxation, poor infrastructure, unprecedented level of brain drain, scarce resources, limited scope for expansion, high-density population and many more. Strangely, the Government of Kerala, a micro-economy which is heavily dependent on foreign remittances from expatriates, is exploring new avenues for raising funds through excessive taxation, under the pretext of providing solace to the downtrodden populace of the State, which in my opinion is nothing less than the utopian way of managing the exchequer.

It is true that the major source of revenue of a State is from tax and the same is to be utilised by the State for the welfare of the people to assure them the better living conditions. It is also true that no State can survive without collecting taxes. However, excessive taxation will not only reduce the scope of expansion but restrict the entry of new players into the market also. Ideally, a government with a development mindset should keep a lower entry barrier for the investors to encourage them to invest in the State and thereby keep the wheel of the economy moving. A player in the construction real estate sector is not meant to create structures alone, but to generate employment opportunities for many, investing opportunities for desired, taking part in fashioning better infrastructure, revolutionizing the living conditions of the people, moving the economy through trade and commerce and much more.

As per industry experts, the construction sector is remitting approximately 38% of its total revenue collection towards various tax structures and the recent incremental levy on the construction sector may increase the cost of construction by 30%, which is ultimately affecting the common man, who is struggling to make ends meet. Imposing the additional levies on the construction sector is sure to pull the ranking of the State further down when compared to the neighbouring states. The escalated rates of construction in the State are making it more uncompetitive and may drive away prospective investors to other States providing better facilities and economies. With improving interstate rail-road-air connectivity, investors have no reason to invest in a State where the cost of living is exorbitantly high and investing conditions are hopelessly low.

As per published data, the cost of construction in Kerala is heavy when compared to the cost of Tamil Nadu, Karnataka and Andhra Pradesh. By increasing the Application fee and Permit fees, Kerala retained the number-one position in that segment. Due to the increase in fees, an apartment having 1000 Sqft have to pay Rs 20,000/- which is unprecedented and exorbitant from any viewpoint. It is also worth noting that, Kerala remains in the top position on the cost of M Sand, 20mm Blue Metal and plastering sand, whereas our neighbouring states are far beneath in those factors.

While levying the additional fees and taxes in an unprecedented manner, the Government had miserably failed to notice that, the additional levy in the form of fees is not meant for the apartment complexes alone but for all kinds of construction activities in the State, which will eventually result in the spiralling-up of the cost of living in all levels of life. Only a few of the end customers are using their own funds to invest in apartments/houses and most are depending on loan funds from financial institutions for achieving their long-cherished dream home. The impact of the additional fees and levies on the construction sector is destined to pour cold water on their enthusiasm to own their dream home as the repayment of the loans will increase in accordance with the increase in the cost of construction.

The drivers of the State economy are hopelessly trying to bridge the fiscal deficit by astronomically taxing its citizens, which is in addition to the Income tax, GST, fuel cess, land tax, building tax etc. The hike in the building tax during the construction stage will affect the competitive edge of the State and will result in the diversion of potential investments to other states. The Government is ill-advised on the taxation regime, which is evident from its deeds, as they are trying to extract more flesh and blood out of an already struggling industry. The escalation of the cost of construction will not help anyone, including the Government in long run. The excessive rates will result in lesser demand and will impact sales to a larger extent. The same will finally result in low-quality construction and a smaller number of quality players in the market and eventually affect employment opportunities, where labourers and low-income people will get seriously affected.

In view of the above and considering the huge adverse impact on the economy, the Government should rethink their decision to increase the permit fees/ licence fees and other additional levies and strive to create a better and more competitive atmosphere to attract more investors to the State. In the strive to grab a fair share of the vote bank, the Pirates masked as new age Robinhood, through illogical taxation policies are dragging the entire State to more darkness. No economy had survived on freebies and soaps and nevertheless, it will continue to perish unless the State strives to create better employment opportunities for its citizens. Unless the Government revisits taxation policies and concentrates more on the revival of the major industrial segments of Kerala, the economy is destined to perish at the cost of the welfare of the common man.

Bijoy P Pulipra Advocate

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