Many railway projects in India, worth Rs 1 lakh crore have lost momentum or stopped since July 1, as the contractors executing them are engaged in a dispute with the national transporter over the new tax system.
Prime Minister Narendra Modi introduced the nationwide goods and services tax on July 1, in a bid to eliminate multiple state sales taxes, making it easier to do business in India. However, the manufacturing and services activity lost momentum in July after the new tax policy sowed confusion.
Contractors across the country have decided to stop working from August 20, if the confusions are not solved. Before goods and services tax was introduced, contractors had to pay a maximum of 4 percent service tax depending on the state, but after the new tax system was launched, a GST of 18 percent was imposed. Though the railway said they will bring the tax to 12 percent, there is no clarity according to the contractors, reported The Times of India.
"If contractors incur any additional cost in execution of works or in relation to performance of their obligations under the relevant agreement, they have to be compensated on introduction of new tax as principle of equity and justice," said an official at the Indian Railway Infrastructure Providers Association (IRIPA) on August 14.
"Nobody has taken a bill as the additional tax will eat into their working capital," IRIPA general secretary Rajesh Kumar Menghani told TOI.
The Railway Board is yet to suggest solutions for the growing confusions led by the GST and submit a report by August 31.