December 09, 2019
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    Chambers hail rate cut

    November 30, 2019

    The Ceylon National Chamber of Industries (CNCI) Chairman Eng. Ruwan Edirisinghe, cheered the sharp cuts in tax rates for the construction industry this week.According to the Finance Ministry, it had been decided to reduce income tax on the construction industry from 28% 14%, while the VAT on condominium properties had also been abolished.Moreover, the tax free threshold for VAT has also been raised to Rs. 25 million turnover per month from the existing Rs.1 million.

    Noting that local construction companies as well as the overall industry are facing difficult times over the last couple years which had led to constrained growth as well as pressures on profitability, Edirisinghe said that the recent tax cuts would help revive the industry activities as well as overall economic activities in the country to a great extent.

    He further said that the industry is plagued mainly due to the sluggish economic growth, unfair competition by foreign contractors, high cost of construction material and construction costs and many other factors.Edirisinghe also hailed the government’s decision to reduce the income tax on the construction industry from 28% to its previous level of 14%.

    “Moreover, the reduction of the current VAT rate of 15 percent to 8 percent would particularly benefit the small and medium scale companies in a big way. Nevertheless, in order to garner full benefits, the government would have to maintain these tax deductions for at least another 15 years,” Edirisinghe said.

    President of Sri Lanka Chamber of Small and Medium Industries Rohan De Silva, says a simple VAT of 8%, replacing the current 15% +2% NBT is welcomed. In addtion the 5 year moratarium on taxes payable by agriculturists and small and medium enterprises wil have a major positve impact for the Agro sector.

    Increase on imports tariff on goods competing with locally produced substitutes will help more local manufacturing.

    Zero VAT scheme for businesses providing services to Tourist Hotels if more than 60 % of requirements are purchased locally will help the cortage industry to grow in a big way.

    A clear and simplified Tax System too would bring in more tax payers.

    PAYE Tax to be scrapped and personal income to be subject to a minimum of 15 % too is hihgly commended. SLCSMI says that these proposals will help in easing the burdens faced by the mixcro, small and medium industry sector which contributes 70 % of thr GDP and it’s employees constituting over 40% of the national worlforce.

    Meanwhile Eng. Nissanka N. Wijeratne, Secretary General /CEO, Chamber of Construction Industry, Sri Lanka issuing a statement said the relief package was a real boost to the construction industry.

    “The relief package announced by the Government will be a real boost to the construction industry which is in a grave crisis. The situation faced by this industry is so grave that if not for this relief package several construction companies could have ended up in liquidation within the next 3 months.

    Reduction of income tax on construction companies from 28% to 14% was a request of this Chamber even before the election. This reduction in income tax coupled with allowing duty free import of construction machinery and advanced technology will encourage construction companies to make necessary investments on more efficient and improved construction practices. This couldreduce the demand for skilled workers which is seriously in short supply that has required companies to bring foreign workers who have to be paid in Dollars. Another positive measure is the reduction of VAT to 8% and removal of NBT. Even before NBT was not applicable to construction contractors but on materials used NBT had to be paid. This will help to reduce the construction cost which is second only to Singapore in South Asia now.

    Increasing VAT applicability to those with annual incomes more than Rs 300 million from earlier Rs. 12 million will be beneficial to the cash flows of SME contractors. However, they will have to incur VAT on materials purchased as the manufacturers will be liable to VAT which will be passed on to the customers. Earlier this could be claimed as input VAT.

    Removing NBT, ESC & Debit tax on banking services is another welcome move. The real benefit to the industry will be if this could reduce the lending rates by the Banks. Due to delays in payments and low construction volume many construction companies are compelled to default on loan repayments to Banks. Government should seriously consider in addition to reducing lending rates to a single digit, also to instruct banks to reschedule the loan repayments giving a grace period.

    Abolishing VAT on apartments will spur the apartment development which is a necessity in Colombo and other major towns. At present a drift of population from Colombo to suburbs is noticed which will cause further traffic congestion. To peg this tendency it is important to make the apartments affordable to middle and low income groups. For this in addition to removing VAT, loans at reduced interest rates and repayable over a longer duration of about 40 years should be considered to middle & low income groups.

    According to the press release all foreign exchange revenue will be free from income taxes. If this is applicable to earnings from export of construction services, then it will greatly encourage our construction companies to venture out to export construction services.Earlier companies with more than 80% export earnings from construction services were taxed at 14% and those with lesser percentage at 28%.

    The Chamber of Construction Industry firmly believe that there are enough possibilities for our construction industry to be a foreign exchange earner given the right incentives and facilities. In summary the Chamber of Construction Industry lauds the measures announced but wish to urge further help to resurrect the industry.”

     

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