Uncertainties on 15 per cent VAT on residential condominiums
While the residential property market is growing exponentially in Sri Lanka, the 2018 budget proposal of a 15 per cent VAT on residential condominium units from April 1 has raised a lot of speculation and uncertainty whether this will come into effect from next month. The VAT amendment has not yet been passed into law.
Property developers and potential investors raised concerns and explanations on the 15 per cent VAT at last week’s Lamudi Property 360 Real Estate Conference held at the Taj Samudra Hotel in Colombo.
KPMG Principal Suresh Perera in his presentation explained about the VAT on real estate. He said, “In other countries there is no VAT on residential accommodation whether the property is sold, leased or rented which was the situation in Sri Lanka at the beginning whereas commercial accommodation was liable for VAT.” There was VAT on Board of Investment approved, large projects worth more than US$ 10 million, he added.
A letter elaborating two rules was issued by the Finance Ministry to the Condominium Management Authority in relation to the imposition of VAT on residential condominium units, Mr. Perera stated. “The two rules are: If a developer enters into a sale agreement in relation to a condominium unit before April 1, 2018, it will not be liable for VAT. This exemption of VAT on residential condominium (applies) where all the units in the project are below Rs. 15 million.”
The VAT amendment which should hopefully come within the next two to three weeks must include these two rules to be valid. So far the Act incorporated in the budget proposals has not been passed into law, noted Mr. Perera.
Candor Holdings Group Director Ravi Abeysuriya speaking on attracting foreign direct investment (FDI) to Sri Lanka’s real estate sector stated that the 15 per cent VAT on residential accommodation should not apply. “If the government is smart enough and wants more FDI to flow into the country, VAT on physical asset should not be applied whereas it must be applied on consumption. It’s a very poor decision where no other country has done before on the real estate sector,” he noted.
He also mentioned that the government is planning to have the Financial Intelligence Unit (FIU) requirements on real estate. “Anyone who pays by cash over Rs. 1 million will be reported to FIU and they will be monitored,” he said while adding that once those things come, lot of money that flows into the country will come down.”
Mr. Abeysuriya pointed out that infrastructure must be made an attractive value proposition for FDIs to flow in and the county must grow in the affordable and middle income housing market segment. “Sri Lanka lacks policy stability and consistency to attract the right people and make the right decisions,” he noted.