Construction sector on brink as 40% of firms become inactive - Sri Lanka Construction Association President

By Mangala Pavithrani

Colombo, June 5 (Daily Mirror) - About 40 percent of businesses in Sri Lanka's construction sector have become inactive due to continued changes in tax policies, the increase in VAT and the depreciation of the rupee, President of Sri Lanka Construction Association Susantha Liyanaarachchi said.

Speaking to the Daily Mirror Liyanaarachchi said that, the Government's economic policies have placed a heavy burden on businesses and the public.

He said that although the Governor of the Central Bank has highlighted the growth of foreign reserves, a significant portion of that increase was linked to the US$695 million received from the International Monetary Fund (IMF), and should not be viewed as genuine economic growth.

Liyanaarachchi also alleged that fuel prices were increased despite expectations of relief measures under the IMF programme. He said countries such as Japan and India had provided direct subsidies to support local industries when global fuel prices declined, while Sri Lankan businesses continued to face rising production costs.

Inflation had risen to 6.2 percent and pointed out that individuals and businesses are paying taxes ranging from 30 to 36 percent, while VAT currently stands at 18 percent he noted.

"Even if inflation appears lower on paper, the real burden is being felt by ordinary people and businesses. The value of money is shrinking every day due to these policies." Liyanarachchi said.

The construction industry chief further claimed that the government may be preparing the ground for another electricity tariff increase in the future. He also criticized recent remarks by ministers suggesting that a person could live on Rs. 16,690 a month, describing them as insensitive at a time when poverty levels remain high.

According to Liyanaarachchi the IMF has projected Sri Lanka's economic growth at around 3 percent, reflecting the challenges facing the economy.

Commenting on the construction sector, he said the cost of materials has increased by more than 120 percent over recent years.

As an example he said that, a roll of electrical wire that once cost Rs. 1,580 is now equivalent to the labour charge for installing a single electrical point. He added that profit margins in the industry have been limited to between 17 and 20 percent, making it difficult for companies to remain viable.

Liyanaarachchi also said that recent changes to tax structures affecting the construction sector, together with the removal of the Dollar Price Fluctuation relief scheme from May 31, have further worsened conditions for contractors.

As a result, he warned that even large-scale construction companies are struggling to continue ongoing projects.