Apartment prices up from today as 15% VAT takes effect
– Finance Ministry stands firm despite industry concerns
– Agreements entered into before 1 April exempted
Despite intense lobbying by condominium developers and the construction sector, the Ministry of Finance (MoF) is set to implement the 15% Value Added Tax (VAT) on condominium sales with effect from today (1) as promised in the Budget 2019.
The Finance Ministry confirmed to The Sunday Morning Business that the levy would be imposed as planned in accordance with the Government Gazette issued in August 2018 “Value Added Tax (Amendment) Act No. 25 of 2018”.
Following the tabling of the Budget 2019, industry stakeholders started lobbying for ongoing projects to be granted exemption from the newly-introduced output VAT on apartment sales.
Speaking to The Sunday Morning Business two weeks ago, Condominium Developers Association of Sri Lanka (CDASL) Chairman Pradeep Moraes stated that many of the ongoing big projects in the country had neared completion of construction work and imposing VAT on these apartments was unreasonable.
“Projects for which permits have been obtained already and work is ongoing should be exempt from output VAT as all their contracts and pricing have been based on previously-existing tariffs. Each development will be affected in different degrees depending on how much they have spent on the project and how much inventory is left,” he said.
Speaking to The Sunday Morning Business soon after the Budget 2019 was presented, Chamber of Construction Industry (CCI) President Eng. Maj. Ranjith Gunatilleke noted this proposal would weaken apartment sales, which were already not fast-moving.
“Now, for some reason, apartment sales are not fast-moving. VAT is also being levied, so the prices of apartments will increase further and that situation may not encourage apartment sales,” he said.
VAT on apartment sales was in effect before 2015, but was removed in the Budget 2015 and made a return in the Budget 2018.
However, Minister Mangala Samaraweera deferred the tax for a year due to industry concerns and stated that it would be effective from April 2019 with Sales and Purchase Agreements (SPA) signed before 1 April 2019 exempted.
Moraes, who is also a Director at Altair, stated that providing a 30% cess reduction on imported construction material was most welcome, but this would be of marginal benefit for developers whose projects were nearing completion.
“Altair has spent more than 85% of the total project cost and there is 30% of inventory to be sold. Therefore, there is a disproportionate percentage of VAT that cannot be claimed and many other developers are in the same predicament,” said Moraes.
Apartment projects valued under Rs. 15 million will also be subjected to VAT exemption. VAT is also exempted if a person is buying the property from a private seller in the secondary market, unless the property is owned by a VAT registered company.
In another measure to offset the negative impact of the VAT impositions, the Budget 2019 also proposed the granting of residential visas for three years to foreign nationals who invest Rs. 70 million or more in condominiums. This process will be implemented this year. However, this residential visa will not be valid when the foreigner exits the investment.