The State government has directed all departments to insist on contractors / concessionaires engaged in the construction of infrastructure projects, including those in PPP mode, to purchase goods from dealers within the State to the extent they are available in required quantity and desired quality, and the price, excluding tax, is competitive. The government has asked the departments to incorporate suitable provisions in the contract agreements to this effect.
The decision has been communicated as the government sensed that the agencies involved in the projects are likely to go for inter-State purchase, instead of intra-State purchases in view of the difference in the tax on purchase of material.
The ongoing activity, including construction works on the new capital city, involves purchase of large quantities of construction material like iron & steel, cement, timber, electrical goods, sanitary ware, and hardware. Most of these goods are taxable at the rate of 14.5 per cent under the A.P. Value Added Tax, except for iron and steel which are taxable at 5 per cent. The material component would form 70 per cent of the civil works on an average, thus amounting to substantial tax revenue to the State if all purchases are made within the State.
However, the provisions under the Central Sales Tax Act facilitate inter-State purchase of goods by paying 2 per cent CST against C-form and, therefore, the agencies involved in the construction activities are likely to go for inter-State purchases.
This is true especially in the case of works contractors who are dealers by definition under the APVAT Act and are eligible to issue C-forms for inter-State purchases.
The government’s calculations showed that the works contractor should pay 14.5 per cent tax on purchase of goods from dealers within the State. He would be liable to pay another 5 per cent tax on the total turnover without input tax credit, taking the total tax burden to 19.5 per cent. However, in the event of the contractor opting for inter-State purchase of goods by paying 2 per cent CST with C-form and opting for composition of 5 per cent tax, the tax burden would come to only 7 per cent. In such a scenario, the works contractor would definitely go for inter-State purchase of goods rather than local purchases. “The huge disparity between the local VAT rate and the CST rate will lead to trade diversion and also loss of revenue to the State,” Chief Secretary S.P. Tucker said in an order issued on Wednesday.
The huge disparity between local VAT rate and CST rate will lead to trade diversion and loss
of revenue
S.P. Tucker
Chief Secretary
