In an interaction with the media ahead of Tuesday’s cabinet expansion, Prime Minister Narendra Modi spoke about the need to broaden India’s tax base.

In an interview carried by Business Standard, he said:

“We need to move from a situation where only a few people pay direct taxes, and many escape, to a situation where many people pay a moderate amount. We have to ensure that all those who should be paying tax actually do pay tax.”

It is in Modi’s power to act on this vision. An important step in expanding the tax base and, thereby, eventually lowering the tax rate is to focus on real estate.

Four years ago, finance ministry brought out a “White Paper on Black Money.” In this paper, they identified real estate sector as an area that is relatively more vulnerable to the “menace” of black money. Not only are a lot transactions partly concluded in cash which remains unaccounted, the sector also is a recipient of a lot of black money.

According to the paper, real estate sector contributes about 11% of gross domestic product, which is substantial. In other words, black money in real estate sector limits the expansion of tax base and penalises honest tax payers.

The constitutional division of powers has largely left real estate to state governments.

Despite the limitation imposed by the constitution, Modi does have a way of increasing transparency in real estate transactions which will then lead to a fairer tax system.

Last year, a group of officials from state governments and the centre advocated a few changes to the constitutional amendment bill on Goods and Services Tax (GST) proposed by NDA government.

The group, which was led by finance ministry’s chief economic advisor Arvind Subramanian, felt the fight against black money would be helped if GST is extended to real estate transactions.

The backstory to this recommendation is that the GST bill introduced in parliament by Modi government does not propose to expand GST to real estate transactions.

However, the group of officials led by Subramanaian, who drafted the “Report on Revenue Neutral Rate and Structure of Rates for Goods and Service Tax,” suggested bringing real estate within the ambit of GST as it would result in documentation. Once documentation exists, it will act as a deterrent to tax evasion.

Unfortunately, so far, there has been consensus among all the major political parties on keeping real estate out of GST. It is not difficult to guess why all of them are on same page on this issue.

However, if Modi is serious about expanding the tax base and also getting rid of black money, he should ensure that the next time the constitutional amendment bill on GST is presented in parliament, it should include real estate. Let us then see how many political parties wish to oppose it.