THE NEW law on VAT in the construction sector is starving an already cash-strapped industry of liquidity at a time when bank loans have dried up, threatening to neutralise efforts towards economic growth while increasing unemployment, warned building contractors on Thursday.
Vice-president of the Cyprus Employers and Industrialists Federation (OEV) Sotos Lois yesterday called for the immediate abolition of the new VAT law implemented on March 9, warning that failure to do so will lead to the construction industry taking “dynamic measures”.
According to Lois, before March 9, building contractors would charge buyers 17 per cent VAT on a house, which would be paid in stages during construction of the property. The contractors would use that 17 per cent to pay subcontractors (electricians etc) and suppliers during the building of the house. Any leftovers would be deposited with the VAT Service.
The government then decided to change the system, scrapping the VAT that contractors would charge buyers in an effort to jumpstart the construction industry, which has seen one of the biggest downturns in revenue since the economic crisis started, resulting in thousands of unemployed.
Under the new system, the buyer does not pay VAT but the building contractor does on all supplies, such as for metal, wood, glass etc., which counts for about 30 per cent of the total costs, said Lois.
However, contractors are no longer expected to pay VAT to subcontractors after March 9, the government’s thinking being that by and large, subcontractors remember to charge VAT but tend to forget to pass it on to state coffers.
So, with the new law, building contractors do not get paid VAT but are expected to find the money to pay VAT on construction supplies which they then request back from the government every three months.
“Given the way bureaucracy works, it could take anywhere between six and nine months to get it back. This is wrong and unfair,” said Lois, who argued that the government was effectively borrowing.
He warned that many contractors will end up buying supplies from abroad or from the north using the Green Line Regulation where VAT is not charged, creating a knock-on effect for the Cypriot industries supplying bricks, aluminium, plastics, and other materials.
The new system will end up having the opposite effect of its intended purpose, creating serious cash flow problems for the industry, resulting in further layoffs, he argued.
Lois was flanked by representatives of a number of construction industry associations at the OEV offices during Thursday’s press conference.
Head of the Building Contractors Association Aristos Aristotelous said, as a result of this law, the construction industry will end up having between €150m and €200m tied up during a six-month period as contractors wait for the state to pay VAT returns owed.