With the Central Government having decided to levy service tax on high-rise buildings, it is likely to hike the prices of flats in multi-storey buildings.

The tax, being proposed to be made effective from June 1, 2005, will not be a minor tax, but will be 10 per cent. The builders of the multi-storey flats have reportedly advanced a strange logic saying that hike in prices of the flats will not seriously affect the end users, because most of their buyers are millionaires who belong to upper classes.

In any case, purchase of flats in multi-storey complexes will become a costlier proposition from next month. Although, the aim of the Central Government is to tax the builders, it is the individual buyers who will be affected by the tax component ultimately. The tax hike, proposed by Union Finance Minister P. Chidambaram in the finance bill, has now been passed by Parliament.

The 10 per cent service tax will be imposed on those builders who construct buildings with 12 or more units. The builders are likely to show it as part of construction cost, but the common buyers will have to bear the burden of the enhanced service tax as builders always extract it from the buyers in one form or other.

In simple terms, the flats now available for Rs 10 lakh will be priced at Rs 11 lakh from June 1. The only way out for those intending to buy flats is that they should hurry up and clinch the deal by end of May 05. The tax, however, will not be applicable on Avas Samitis (housing societies) or Avas Vikas Parishad etc.

According to Kunal Banerjee, senior vice-president (Marketing), Omexe Constructions: "Though the data of service tax has been announced by the government, it is yet not clear as to on what price this tax will be calculated. It will not be correct to calculate on the total price. But if it is imposed on labour cost or material cost only, its burden on end buyers will be up to four to five per cent."