Key to Mumbai Metro project turning cheaper is GST? Here is how

In a move that may lead to a considerable decline in Mumbai Metro project cost, the state government has asked for a rebate from the contractors handling the project following a change in tax rate under the goods and services tax (GST). Under the new indirect tax regime, the GST on construction cost has been reduced to 12% from 18% earlier.

Recently, during a meeting held between Mumbai Metropolitan Region Development Authority (MMRDA) — Government of Maharashtra body that is responsible for the infrastructure development of the Mumbai Metropolitan Region — and companies executing metro rail projects, one of the issues being discussed was that the government agency had asked for a rebate in construction cost as the GST applicable has now been reduced from 18% to 12%.

A good 6% fall in tax liability will thereby make the metro rail project cost cheaper. However, during the meeting the contractors told the officials that they will not be able to extend the entire 6% of the difference, sources from MMRDA said.

In order to find “an amicable” solution or clarification on the subject, a meeting was arranged with GST Commissioner, Maharashtra. A few weeks back, a meeting was held at GST Bhavan between MMRDA officials, the GST Commissioner and construction firm representatives.

During the meeting, the GST Commissioner explained to the contractors that the difference of rebate has to be extended to the government agency.

“However, the difference has to be arrived at after, either, the internal auditors or independent auditors scrutinise the bills submitted by the private parties on work undertaken for the project. It is only after going through the input tax credit, under what (composite or any other) scheme of GST the construction firm is paying taxes, etc., the actual rebate can be arrived at,” said a source after referring to GST Commissioner’s communication.

Usually the infrastructure project costs tend to rise during the completion stage, but in this case despite a spike in cost, a certain percentage will get absorbed if the rebate is offered.

In August 2016, work was awarded for 18.60 km long Dahisar East-DN Nagar Metro 2A for which the estimated project cost on completion was Rs 6,410 crore.

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Similarly, for the 16.50 km long Dahisar East-Andheri East Metro 7 route, the estimated completion cost was Rs 6,208 crore.

Source: DNA Money