Tax reductions support construction industry development

On the advice of President Gotabaya Rajapaksa, the reduction of tax components in the construction industry on Pay As You Earn (PAYE) tax to 14% from the original 28%, Value Added Tax (VAT) from 15% to 8% was appreciated by the leading institutions and the trade chambers in construction sector, says CIOB President and Chamber of Construction Vice President Dr. Rohan Karunaratne. 

CIOB President and Chamber of Construction Vice President Dr. Rohan Karunaratne.

Dr. Karunaratne further states that this PAYE Tax and VAT reductions will support the industry to be developed in the long term which has currently been moving in a downward trend.

Further speaking on the matter Dr. Karunaratne says: “The majority of business community, professionals, employees and their families in the construction industry supported Gotabaya Rajapaksa at the Presidential Elections. In addition to that the trade chambers, and member institutions also proposed some suggestions to Gotabaya Rajapaksa on how to develop the declining construction industry once again. The only goal of all of us was to safeguard construction industry on which about 500,000 to 600,000 people earn their living which makes a significant contribution towards the country’s GDP. Gotabaya Rajapaksa responded positively to our proposal as soon as he became the President of Sri Lanka. We value it very much.”

Dr. Rohan Karunaratne also highlighted three important matters which will support the upgrading of all who make a living through the construction industry. 

Competition with foreign builders: There is a danger of huge foreign construction companies overrunning the Sri Lankan construction industry. These gigantic foreign companies operate with various incentives offered by their own governments. Due to this reason the local construction companies are encountered with a tremendous disadvantage in competing with them. Any government that runs on a foreign loans or Foreign Direct Investments has to join with the foreign construction companies. Yet, those foreign companies have to join with the local companies with at least minimum 40% work sharing on construction projects. Likewise, all the construction contracts based on local funding should be offered to the local construction companies. 

Set up a bank or infrastructure development fund: China Construction Banking Corporation is the second largest bank in the world. This special bank contributed an enormous support to the rapid development of China. Sri Lanka should start such a bank or a fund which can support the construction industry in the form of a development bank immediately. In the last budget speech also there was a proposal mentioning to start a special construction bank like a development bank with the help of the private sector. If such a bank is opened, the capital should be about $ 100 million. 

Create enough work: The Government is the main benefactor for the construction industry. If it stated in a different way, the Government is the main single client who provide construction contracts to the construction companies. During the past five years the Government work offered to construction companies are very marginal. The delay or non-payment of the funds for the work carried out for the government was another problem faced by the companies. On the other hand, construction companies face problems by obtaining loans from the commercial banks on high interest rates for construction work and their inability to settle them on time.