Treasury agrees to VAT imposition only on new projects

The Treasury has promised the Condominium Developers Association of Sri Lanka (CDASL) that the recent budget proposal to impose Value Added Tax (VAT) to condo builders will only be applicable on the sale of new condominium housing units with effect from April 1, 2018.

This was in response to a letter the CDASL had sent to the Treasury last month. With this amendment the developer could price the condominium housing units giving due consideration to the VAT that can be reclaimed on the inputs. CDASL members told the Business Times that Treasury officials are yet to confirm the amendment in writing.

The proposal to impose a 15 per cent VAT on the sale of Condominium Housing Units from April 2018, which was presented in the budget was opposed by developers with CDASL members saying that whilst they realise the need for bigger revenue for the Government and the intent to abolish selective exemptions, they are strongly of the view that the re-imposition of VAT on the sale of condominium housing projects which have already started construction and sales will be counterproductive and cause a serious negative impact on the industry.

The developers of such continuing projects have enrolled into legally binding contracts with the buyers based on preagreed prices. The customers have in turn planned their funding and in many cases entered into financing arrangements in this regard, the CDASL letter says.

"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,” it said.

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 further said in the letter.