The Condominium Developers Association of Sri Lanka (CDASL) met with Treasury officials on Tuesday morning seeking an amendment to a recent budget proposal to impose Value Added Tax (VAT) on condo builders. The proposal to impose a 15 per cent VAT on the sale of Condominium Housing Units from April 2018 was presented in the [...]

Business Times

Condo builders want VAT imposed only on new projects

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The Condominium Developers Association of Sri Lanka (CDASL) met with Treasury officials on Tuesday morning seeking an amendment to a recent budget proposal to impose Value Added Tax (VAT) on condo builders.

The proposal to impose a 15 per cent VAT on the sale of Condominium Housing Units from April 2018 was presented in the budget. CDASL members say that whilst they appreciate the need for increased revenue to the Government and the intention to eliminate selective exemptions, they are strongly of the view that the re-imposition of VAT on the sale of condominium housing projects which have already commenced construction and sales will be counterproductive and cause a serious negative impact on the industry.

The developers of such ongoing projects have entered into legally binding contracts with the buyers based on pre-agreed prices. The customers have in turn planned their funding and in many cases entered into financing arrangements in this regard, Pravir Samarasinghe, President CDASL told the Business Times when contacted.

“It also will be extremely difficult for the developers to absorb the VAT. We anticipate that the net impact on the cost would be substantial and seriously impact the project viability.”

This will have a significant impact on the pricing of housing units as the input VAT during the exempt regime has already been absorbed as cost and will not be available for set-off, he said. Consequently the re-imposition of VAT on existing projects will have a cascading effect on the prices of condominiums, the CDASL said in a letter handed on Tuesday to the Treasury, addressed to Finance Minister Mangala Samaraweera.

The removal of VAT exemption on sale of condominium housing units is a regressive policy having given the exemption just 12 months ago, highlighting the government policy inconsistency and lack of long term certainty of the tax regime applicable to private sector investments in Sri Lanka. VAT which is a service tax is not charged on property transactions in almost all the countries, except a few, Ravi Abeysuriya, President Colombo Stock Brokers Association has said. “Sri Lanka requires over 1.5 million housing units in the next 15 years according to the national housing policy and most of them are likely to be condominium housing units with vertical living becoming popular. People who have already agreed the purchase price for condominium housing units and pay on an installment basis will have a significant additional 15 per cent VAT burden on the installment with effect from April 2018. A more prudent method for the government would have been to apply VAT on sale of new condominium housing units with effect from April 2018 where the developer could price the condominium housing units giving due consideration to the VAT that can be reclaimed on the inputs.”

The CDASL letter says that the industry is currently stabilising itself against a series of unsubstantiated speculation of an adverse nature and it could be most inopportune for it to suffer yet another shock to the industry. “Also may we respectfully suggest that the government revenue expectation would be better served through gradual taxation of a developing industry rather than heavy taxation of one in ‘forced’ decline,” the letter said.

The CDASL had strongly recommend that projects currently underway to be exempted from the output VAT and VAT on sale of condominiums to be imposed only on new projects commencing operations after April 2018.

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