Maharashtra govt to tap taxpayers to refund GST paid by Dharavi project developerhttps://indianexpress.com/article/cities/mumbai/maharashtra-govt-to-tap-taxpayers-to-refund-gst-paid-by-dharavi-project-developer-5591900/

Maharashtra govt to tap taxpayers to refund GST paid by Dharavi project developer

While the final estimates of the burden this would put on the exchequer are being worked out, government sources admitted the sop’s total worth may well go over Rs 3,000 crore.

Maharashtra govt to tap taxpayers to refund GST paid by Dharavi project developer
Slum in Dharavi, Mumbai. (Archive)

Even before the deal for the Rs 26,000-crore Dharavi redevelopment project is signed, the state government has sanctioned a major fiscal concession to the project’s developer. Chief Minister Devendra Fadnavis has agreed to tap into the state’s exchequer to reimburse all the payments made by the private developer-led Special Purpose Vehicle (SPV) towards Goods and Services Tax (GST) payable over taxable components in the construction project for a period of seven years. Additionally, the state government has agreed to fully reimburse GST paid by existing commercial and industrial units, which are rehabilitated as part of the project, for five years.

Sanjay Kumar, Additional Chief Secretary (Housing), when contacted, confirmed approval to the proposal. Meanwhile, Fadnavis, when contacted, said, “The suggestion that the concession is being given to a particular company is untrue. All the concessions and conditions for the redevelopment had been decided by the cabinet before floating the tender. These were pre-tender conditions known to all bidders.”

Explained: The new plan for Dharavi

While the final estimates of the burden this would put on the exchequer are being worked out, government sources admitted the sop’s total worth may well go over Rs 3,000 crore.

Spread over 2.40 sqkm and home to over 60,000 slum families, Dharavi, Asia’s largest slum, stands on a slice of prime land in the heart of the financial capital. It is situated barely a stone’s throw away from India’s richest business district, the BKC.

Advertising

Earlier this month, Seclink, the Dubai-based infrastructure company, bagged the project to redevelop the slum settlement. The sheer size of the redevelopment makes it the largest redevelopment project in the country. On February 7, an empowered committee of secretaries, headed by Chief Secretary Dinesh Kumar Jain, had accepted the group’s redevelopment bid. A formal MoU between the government, the Dharavi Redevelopment Project Authority (DRPA) and the company regarding the formation of an SPV for the construction project will soon be signed, confirmed officials. With the private players holding 80 per cent stake in the SPV, it will have to bring in an equity of Rs 400 crore on the signing of the SPV, while the state government itself would invest Rs 100 crore.

In an official communication, the state’s housing department has said the perk was necessary to make the project “economically viable” and to “attract investors”. S V R Srinivas, CEO and Officer-on-Special Duty, DRPA, said, “The move is a conscious decision of the government. The whole idea is to reduce upfront cost. Besides hutments, Dharavi is home to an informal leather and pottery industry which employs over a lakh people. Being sensitive to the fact that there would be some loss of livelihood means to those affected by the redevelopment during the construction period, the government has decided to also extend reimbursements in GST to all such units.” He added, “At present, Dharavi is a thriving informal economy. The state government does not get much in terms of tax from units functioning out of here. One of the prominent themes of the redevelopment project is to formalise this economy. Once this ‘mini-city’ is developed, the tax revenue realised by the government would be many times more than the concession extended.”

Srinivas also pointed out that previous bids invited for the makeover had not received a response owing to questions over the economic viability and the upfront burden on the intending buyers. He also pointed out that the government has a 20 per cent stake in the SPV.

Incidentally, last November, when the cabinet approved Dharavi’s new redevelopment plan, reimbursements for GST payments from the state budget was not a part of the project. What had been agreed at that time was that the Centre’s GST council will be moved with a proposal for considering a “rebate in the state’s share in the GST over taxable components, with the exception of cement consumption, which would not be exempt after an investment of Rs 2,000 crore.”

But sources said the GST council had conveyed that “there was no such provision for exemption that could be extended to a single project.” With the Centre’s nod for the sop unlikely, the state had to tap into the state exchequer to grant reimbursements. The concession comes at a time when debt is mounting on the state’s exchequer and the state’s fiscal managers had announced a fiscal discipline measure of funding big ticket projects through off-budget borrowings.

Additional Chief Secretary (Finance) U P S Madan, when contacted, also echoed Srinivas’s viewpoint. “Once the redevelopment is done, the revenue realised by the state through GST will be high. The project is also labour intensive and will lead to job generation.”

Incidentally, Madan’s department had opposed the tax concession when the cabinet was discussing the proposal last November. It had said that the concession itself amounted to an “indirect subsidy”. With the state now opting to reimburse the GST payments from its own budget, senior sources said that a “direct subsidy” is now being extended.

The cabinet has also extended a waiver of stamp duty on development rights agreement for the redevelopment project. The state’s revenue department has contended that this alone will cost the state exchequer a loss in revenue of over Rs 1,000 crore. A stamp duty waiver has also been proposed for the first sale of the saleble area.