#1S. Thumilan ACA, ACCA, ACMA (UK), CGMA, CPA (AUS), MCSI (UK), FMAAT (SL), ACS Group Chairman, Blue Ocean Group & Honorary Secretary of CDASL BOS Impact of Major Changes of New IRD Act and Recent Amendments made to VAT & NBT for Construction Industry#2Overview . Key Economic Indicators • Trends in Real-estate & Construction Market Real-estate & Construction Market in Sri Lanka • Real-estate & Construction Industry Contribution Real-estate & Construction Industry Taxes . Income Tax Rates • VAT Implications • NBT Implications • Economic Service Charges Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#3Colombo, Sri Lanka : A Vibrant Capital Today, the city of Colombo is also known as a "Commercial Hub City" for its massive amplification in infrastructure development. It boasts a highly educated workforce, a clean and verdant environment, modern cosmopolitan values, stable democratic governance, and investor-friendly structures. Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#412.0% Key Economic Indicators - Inflation Sri Lanka Inflation (Based on CCPI) - April 2018 10.0% 8.0% 6.0% 4.0% 2.0% 10.0% -2.0% Jan-11 Apr-11 Source: DCS H-10 11-PO Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL Point to Point Annual Average 5.9% MAA 3.8% M1-190 91-100 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 91-100 91-100 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Feedback.lk#5Key Economic Indicators - FDI- Sri Lanka Foreign Direct Investment of BOI Enterprises by Sector ($ Mn) Telephone and Telecommunication Network 12% Port Container Terminals 17% Housing. Property Development and Shop Office 32% Source: CBSL Annual Reports 2017 Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL other 10% Food Beverages and Tobacco Products 4% Textile. Wearing Apparel and Leather Products Hotels and Restaurants 15% Chemicals. Petroleum, Coal and Rubber Products 6% Feedback.lk#6Key Economic Indicators - FDI History Foreign Direct Investment of BOI Enterprises by Sector ($ Mn) 1800 1600 100% Agriculture.1% Manufacturing 90% 24% 26% 22% Manufacturing. 27% 20% 31% 80% 1400 1200 1000 800 Services 600 400 200 70% 19% 17% 60% 29% 33% 26% Infrastructure Services 26% 50% 40% 30% Infrastructure. 61% 57% 47% 45% 47% 42% 20% 10% 0% 2012 2013 2014 2015 2016 2017 2012 2013 2014 Source: CBSL Annual Reports Note: Includes loans, excludes inflows to non-BOI companies and direct investment in listed companies in the CSE 2015 2016 2017 m Feedback.lk Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#7Key Economic Indicators - Employment Elementary occupations 29% Plant and machine operators and assemblers 18% Managers Construction 6% Source: DCS - LDS 2017 Distribution of the employments by occupation group 2017- Sri Lanka Professionals 8% Associate professionals 12% Plant and machine operators and assemblers 5% Elementary occupations Managers 10% Tourism 12% Professionals 11% Craft and Service and related trades workers 8% sale workers 4% Clerical support workers 10% Craft and related trades workers 13% Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL Skilled agricultural,fore stry and fishery workers 2% Clerical support workers 16% Service and sale workers 27% Associate professionals 9% Feedback.lk#8Key Economic Indicators - Employment 12.0 10.0 8.0 Sri Lanka: Unemployment (Gender) Female 6.0 Male 4.0 2.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 4Q source: DCS 2017 Feedback.lk Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#9Key Economic Indicators Composition in GDP 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 2010 2011 Source: CBSL 2012 2013 2014 2015 2016 2017 Real estate activities, Including Ownership of dwelling Construction Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL Feedback.lk#10Key Economic Indicators LODO.DOC 900.DOG 800.200 300,000 600.000 500.000 480.000 300.000 200.000 10:0.000 Source: CBSL Loans granted to Construction (Rs. Mn) 0102-10 102-10 AR-CO 1102-20 1102-10 0102-40 0102-10 0102-20 01-2012 CID-10 2102-50 20-10 2102-20 Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL $10 20 CL-CO 810-40 01-2014 R מאוולט Q3-2014R 04-2014R 01-2015R 5102-20 Q3-2015R 06-2015 R 01-2016 R 02-2014 03-2016 R.D 04-2016 R 01-2017 L-20 edback.k#11Trends in Real-estate & Construction Market 1) Increasing land prices due to scarcity of lands 2) Expatriates choose Sri Lanka as their second home 3) Increase in Global Investors and their investments 4) Locals invest in Condos for rental yields 5) Aged Citizens feel secure and convenient in condominiums Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#12Real-estate & Construction Market in Sri Lanka 35 Price per perch LKR (Million) 25 25 & 27.5 30 ☎32.5 22.5 20 17.5 15 15 12.5 20 10 75 5 COLOMBO LAND PRICES FROM BASELINE DATA IN 2016 17.50 Forecast 22.50 28.92 16.24 16.39 13.61 11.64 995 23.67 12.80 12.55 11.50 9.68 10.00 9.85 8.20 7.81 7.76 6.95 6.20 4.92 6.10 5.50 7.46 6.68 4.31 3.99 480 472 4.11 4.65 3.57 2.5 2012 2013 2014 0 2015 2016 2017 2018 -Colombo 01 <-Colombo 03 -Colombo 04 -Colombo 05 -Colombo 06 -Colombo 08 Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL Land in Demand As per the study by RIU, with the current drive to modernize city, the land price rates were experienced in Colombo 03, 04, 02 and 01 remaining the most expensive due to non-availability of land for new developments. (Annual Report - RIU, 2017)#13Real-estate & Construction Market in Sri Lanka • For a growing high and middle income. population, luxury housing is a key attraction in residential markets. Demand for such housing is derived from a growing urban wealthy demographic. In addition to this, non-resident Sri Lankans (NRSLs) are keen to invest in their country of origin also drive demand. (Real-estate and Land Opportunities - JLL, 2017) JLL Global Real Estate Transparency Index (Country ranking, 2016) Θ 10 20 30 40 50 23 8 2 8 8 60 70 80 90 100 Ranking values in reverse order Sri Lanka Vietnam OQatar Kuwait Oman Myanmar Pakistan Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL Source: JLL Global Real Estate Transparency Index#14Real-estate & Construction Market in Sri Lanka • Expatriates revisiting Sri Lanka: Ageing Population in aboard who are suffering with the climate changes are finding Sri Lanka as their alternative second home. . Growing pollution problems plaguing cities in China and Middle East, were concerned about food safety and water security in the country. Finest education and good medical facilities has attracted many foreigners to invest and reside in Sri Lanka. • Investors who made previous purchases of condos have tasted the market by earning greater capital gains in the past and looking forward to invest more. Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL No. of People Target Audiences (HNI) Liquid Assets = More than Rs.100million 45000 40,815 40000 37,791 34,992 35000 32,400 30,000 30000 34,012 31,493 25000 29,160 27,000 25,000 20000 15000 10000 5000 CEO's SOURCE:RIU Traders -People based in Colombo -Total number of HNI in both Colombo and Overseas Partners of large cooperate companies 0 2015 2016 2017 2018 2019 2020 2021 No. of years Aged between 45-65 Working Retired#15• Real-estate & Construction Industry Contribution Providing skill development and graduate learning opportunities • FOREX earnings to the country when construction industry experienced employees securing jobs overseas • Provide skilled and unskilled employment opportunities. ● ● Financial Institution, Insurance and other connected industries benefit with the development of the industry Infrastructure development of the country • Contributor for the growth of the country's GDP ● • Condominium projects bring FOREX to the country Development of the rural economies Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#16Real-estate & Construction Industry Taxes Taxes Developer Customer Stamp Duty Yes Yes VAT Yes Yes NBT Yes PAL Yes Economic Service Charges Yes Income Tax Yes • The Real estate and the construction industry is burdened with various taxes and levies and sustainability has become a question. Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#17Income Tax Rates Construction Condominium Prior to 1st April 2018 After 1st April 2018 12% 28% BOI Companies are Exempted 28% No Income Tax Exemptions Granted • With the increase tax rates the construction industry will have to pay. a higher tax than the previous years • Introduction of 10% capital gains • This will slow down the foreign and local investments in the industry. Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#18VAT Implications Prior to 1st April 2018 After 1st April 2018 Residential Accommodation Exempted 15%* • . * This has been extended by One Year This will result in increasing prices of residential accommodation and burden the buyers. This may slow down the industry due to affordability of the buyers. Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#19NBT Implications Prior to 1st August 2017 After 1st August 2017 Construction Exempted 2% (on turnover) Residential Accommodation Exempted 2% (on turnover) • NBT has a cascading effect, same like the Turnover Tax in the past Increasing cost of the projects. Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#20Economic Service Charges From 1st April 2017, all companies are liable to pay ESC as at 0.5% (previously 0.25 percent) of the Turnover. Any unclaimed ESC credit can be carried forward for 2 years (down from 4 years) to be set-off against Income Tax. This has an impact on the construction industry which is suffering from liquid cash-flows. Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL#21Mr. S. Thumilan Group Chairman, Blue Ocean & Honorary Secretary of CDASL Thank You