Construction sector still uncertain about much-awaited tax concessions

By Nuzla Rizkiya

Sri Lanka’s construction industry said it is still uncertain about receiving its much-awaited tax concessions, as the industry stakeholders opine that the government’s requirement to meet the International Monetary Fund (IMF)-driven fiscal targets in its budget next year may leave little room for relief.

The sector, still reeling from multiple setbacks post the 2022 economic crisis, has been long calling for relief from a crippling 18 percent Value Added Tax (VAT), which according to the Chamber of Construction Industry (CCI), has severely impacted the construction activity and investor confidence.

However, with the government mandated to meet stringent IMF targets, including a 2.3 percent current account surplus and 15.1 percent revenue by next year, CCI Secretary General and CEO Eng. Nissanka Wijeratne said it would be extremely difficult to consider relief under such tight constraints.

“The construction industry is clambering for some concessions but looking at the broader picture, I think the hands of the government are tied, so we are not sure to what extent they can provide relief,” Wijeratne stated at a CCI seminar on tax concessions held this week.

“I think going from the current 10.2 percent to 15.1 percent in revenue and achieving a current account surplus from 1.8 percent to 2.3 percent are very tall targets. We have to see how the government balances the two in the next budget,” he added.

He went on to highlight the fact that the sector still remains a key part of the economy, having previously contributed 8-9 percent of GDP and employing at least 1.4 million people, prior to the year 2018.

However, the industry has been slumping downwards since 2020, from the challenges brought forward by high material costs, unpaid bills for completed projects and a foreign exchange crisis.

The reintroduction of the VAT on real estate development has further discouraged investment and made homes more expensive for buyers.

“The enormity of the problem can be seen from this. For nearly four years, the construction sector has been in a slump, with no new projects and the existing works suspended. Over 300,000 people have lost employment. So, the industry is looking forward to having more grace periods and relief,” Wijeratne said. 

As of June 2024, Sri Lanka’s construction sector accounted for 7.6 percent of the island nation’s GDP and recorded a 14.8 percent expansion in activity over the first six months of 2024.