CCI says relief package real boost to construction industry

The Chamber of Construction Industry Sri Lanka (CCI) yesterday described the relief package announced by the Government last week was a real boost for the sector. 

“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 next three months,” a statement issued by CCI Secretary General/CEO Eng. Nissanka N. Wijeratne said. It said 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,” it said.  

“This could reduce 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,” CCI added.

Another positive measure according to CCI 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 and 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 and low income groups. 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 CCI firmly believes that there are enough possibilities for the construction industry to be a foreign exchange earner given the right incentives and facilities. “The Chamber of Construction Industry lauds the measures announced but wish to urge further help to resurrect the industry,” the statement added.