VAT plan freezes construction sector

VAT plan freezes construction sector

The government’s announcement in late July for the suspension of value-added tax on new buildings with the exception of primary residences has led to a freeze on housing construction.

Property market professionals point out that, after considering the possible complications from the way the measure will apply, and the likelihood of all existing buildings being exempted from the VAT suspension, there has been a general “blackout” in the sector, as no construction business wants to take the risk of having a permit issued with a 24 percent VAT that may not apply a few months later.

Construction sector sources say the government must immediately clarify what it intends to do, as for now the sector has come to a standstill instead of receiving a boost. If the government does proceed – as is the most likely scenario – to the suspension of VAT only for licenses issued after January 1, 2020 and up to end-2022, it is certain that the last few months of this year will be dominated by a collapse in new construction figures, and transactions concerning newly built property.

In fact the entire effort may come to nothing: According to sector experts, construction companies are already preparing to take recourse to the Council of State, the country’s highest administrative court, as they have a stock of unsold assets and will be harmed by the measure. Legal sources note the CoS may well decide in their favor, as the measure contravenes the principle of equal treatment, because certain properties will bear a 24 percent VAT while others will be exempt, having obtained a newer permit.

Another problem the government has to handle is that if a three-year suspension applies, as planned, construction firms that invest in new buildings during that period will pay their VAT but not collect it when they make their sales. This is because the VAT cost is factored in the sale price, while when the new measure comes into force the construction cost will rise while the price will be lower. On this matter, the federation of construction companies has called for the existing stock to be sold without any VAT.

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