Infrastructure and transportation like road and railway sectors should be exempted from GST, as projects in this segment witness long gestation period and negative returns, Assocham said on Tuesday.
In a note submitted to the finance ministry, it suggested that to avoid accumulation of input tax credit with the contractors, a similar exemption should be granted in GST on direct procurements made by the contractors for such projects.
"In view of the long gestation period and showing negative returns...infrastructure and transportation such as road and railway sectors should continue to be exempted under Goods and Services Tax (GST) regime," the chamber said.
Further, withdrawal of exemption on existing projects will have a negative impact on business revenues, it added.
"Alternative options should be provided in GST, such as zero rating on the contract value chain, in the event the current exemptions are withdrawn, so as to protect the infrastructure projects from any additional tax burden," the industry body said. Assocham said presently, highway toll collected from passengers and annuity amounts received from NHAI for construction and maintenance of highways is exempted from Service tax.
While service by way of access to a road or a bridge on payment of toll charges has been specifically exempted in GST regime, exemption to similar income received in form of annuity from NHAI has not been provided, it said.
GST on existing contracts with non-recoverable taxes from NHAI will have significant impact on revenue, and therefore exemption should be accorded to annuity income as well, Assocham added in the note. As per contract with NHAI, concessionaire is required to share a pre-defined percentage of income from toll collection with NHAI, and there is no clarification whether sharing of such exempted income would be subject to GST.
"Since Toll income is exempted from GST, sharing of such income also should not attract GST," it said.