Cabinet likely to decide on slapping additional taxes on construction industry today

By Chandeepa Wettasinghe  

The cabinet today is likely to discuss the implementation of the Construction Industry Development Levy, which has been delayed for three years, according to a top official.  
“The Finance Ministry didn’t want additional taxation to be imposed on the construction industry, so the implementation of the levy was delayed. A few cabinet papers were submitted proposing alternatives and the cabinet will discuss them next week,”

Construction Industry Development Authority Acting Chairman M.R. Jeyachandran said last week. He was speaking at the seminar titled ‘Construction Industry and the Way Forward’ held at the National Chamber of Commerce 
of Sri Lanka. 

Implementing such a levy now would put greater pressure on the construction industry, since it has to pay 28 percent income tax starting next April under the new Inland Revenue Act, compared to 12 percent now. 

However, the construction industry is feared to be developing faster than at a sustainable rate, which has attracted warnings from the Central Bank of implementing macroprudential corrective measures to correct the situation.  

The Construction Industry Development Levy will contribute towards the Construction Industry Development Fund set up under the Construction Industry Development Act No. 33 of 2014. 

The fund is expected to help small-scale construction contractors and self-employed craftsmen, research and publications related to construction, encourage the innovation of environmentally friendly and cost-effective construction practices and provide long-term insurance and pension for craftsmen not receiving such benefits.  

The costs of the Construction Industry Development Authority too are to be covered by the fund.  

The levy was to be charged as a percentage of the cost of construction projects, with the percentage to be determined jointly by the finance minister and housing and construction minister.  

From 2005, the construction industry was paying a similar Construction Industry Guarantee Fund Levy to the Treasury sourced from 10 percent of contract costs. It was halted in 2011 to encourage construction under the past government.  

How the Construction Industry Development Levy will fit into the current government policy is yet to be seen as the Finance Ministry, continuing past examples, confiscated all such funds held by different industries in 2016 to bolster the state finances. The only industry, which has resisted this, is the tea industry.