The construction industry of Sri Lanka; after going through many hurdles from 2020, starting with the COVID-19 pandemic, then the shortage of raw materials, to the sky-rocketing of construction raw material prices, are now faced with the imposition of VAT from October 1st 2022.
The Prime Minister’s Media Division, on May 31st 2022, announced tax reforms to combat the government revenue loss and to improve the government revenue generation process. In that, it was mentioned that the government will remove the VAT exemption on Condominium Residential Apartments with effect from October 1st, 2022. This was further confirmed in the 2022 interim budget speech by the President (and Finance Minister) of Sri Lanka, in the revenue proposals.
Further, with effect from September 1st 2022, the VAT rate also increased to 15%, while the reduction of the VAT registration revenue threshold will fall from LKR 300Mn to LKR 120Mn from the 1st of October 2022.
Up until 2015, VAT was charged on condominium residential projects. This was removed in the 2015 budget.
In 2018, late Mr. Mangala Samaraweera; Finance Minister of Sri Lanka, reintroduced the VAT amendment through Act No. 25 of 2018 in the budget reading. However, this was later deferred by 1 year due to the intense lobbying by the Condominium Developers’ Association of Sri Lanka, and other pressure groups in the construction sector.
The VAT was re-imposed on the 1st of April 2019, and exemptions were granted for the Sales and Purchases agreements that were signed before April 1st 2019, and for the apartment projects valued less than LKR 15Mn.
Accordingly, as took place in 2019 we believe that the VAT exemptions will also be granted for the Sales and Purchases agreements placed before October 01st 2022. Private sellers will not be liable for VAT, however, properties owned by VAT registered companies will be liable for VAT.
Moreover, due to the increase in home loan interest rates, many first-time home buyers are finding it difficult to afford a home on their own.
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Note: This is not tax advice