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VAT to raise construction costs from January 2018

The Value Added Tax to be implemented by six GCC governments next year will result in an increase in all construction costs and property prices, expert says

Rakesh Pardasani, partner at RSM UAE.
Rakesh Pardasani, partner at RSM UAE.

The Value Added Tax to be implemented by six GCC governments next year will result in an increase in all construction costs and property prices, expert says.

The introduction of the tax is expected to increase the cost of doing business and compliance for firms within a number of sectors, though the 5% rate that will come into effect early 2018 is considered “low” by the International Monetary Fund (IMF).

Rakesh Pardasani, partner at RSM UAE, told Construction Week: “All the material costs such as cement, steel, and other building materials are going to rise by 5%; all services from architects, designers, and contractors will also add 5% to their invoices. This will result in the overall cost of construction to go up by around a similar percentage.”

Rakesh said that this will also impact property developers who will pass on these costs to the end consumer.

He said: “In cases where the developers have sold their units at already agreed prices, they would have incorporated the impact of VAT into their construction cost immediately from 1 January, 2018.

“Accordingly, any costs that they incur after that date will attract an additional 5%, where we will see the developers build it into their selling price of the units.”

The implementation of VAT alone will be costly for the construction sector, with companies having to hire accountants to aid in the transition, compile paperwork, and train staff in the new system, a recent report revealed.
 

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Construction Week - Issue 751
Oct 13, 2019