By Lavern Clarke, Staff ReporterMICHAEL ROBINSON, a financial advisor to developers, expects that the raft of tax measures the Government announced earlier this year will bump up construction costs by about seven per cent, even as he questioned how the Government planned to ensure compliance on some of the measures.
Once exempt services like internal clean-up of building sites, elevators and escalators, heating, lighting, painting and other such services now attract General Consumption Tax, and a special 12.5 per cent tax has been applied to building materials such as sand, stone, top soil and marl.
"I'm trying to figure out how Government is going to collect on some of those items like the painting of structures," said Robinson, president of the Jamaica Institute of Quantity Surveyors, addressing contractors this week.
The quantity surveyor said he has consulted with the tax department and was left with the impression that in the case of the painter, once the worker was on staff, the service provided would not attract GCT, but if the services were contracted, then the client was liable for the tax.
Under this system, "the homeowner once you are painting your house can be called on to pay GCT," said Robinson. "I don't know if they are going to send officers around looking to see who is on a ladder painting."
He had similar queries on the trade in marl and such materials, where the construction sector's practice has been cash payments to truckers who are left to take care of their tax obligations.
"I can just see them (tax collectors) chasing truck drivers all over the countryside," said the quantity surveyor.
Robinson, who was addressing the Incorporated Masterbuilders Association of Jamaica on the impact of the taxes on their cost of doing business, said the impact would come largely from three areas the two per cent import user fee, the decline in value of the Jamaican dollar, and the GCT.
IMPORTED CONTENT
Noting that material content was 60-65 per cent of total cost for a 1,000 square-foot residential building which he used for the purpose of the analysis the JIQS president said the import fee would apply only to 40 per cent, which would be the imported content.
The margins and mark ups to finance the fee as the material flows through the system from importer to hardware store, plus the cost of transportation, pushes the two per cent to 5.88 per cent. But, adjustments by the contractor for preliminaries and labour, said Robinson, gives a net effect of 2.99 or three per cent.
He adds that GCT on marl and other materials is expected to be "quite marginal", at an estimated 0.4 per cent addition to total cost, as these materials account for a small 5-7 per cent of total cost.
In reference to the currency, Robinson said his analysis showed a 40 per cent move in the exchange rate between April and May, when the dollar went to $69:US$1, with suppliers adjusting their prices in line with the movements.
However, the intervention in the market by the central bank eventually saw a levelling off of the rate, with the fall in value levelling off at 7.2 per cent, he said.
But, "materials have not come down at the same rate as the dollar," the quantity surveyor noted, adding that it may well reflect expectations that the dollar will fall again, or suppliers were exploiting the market. The depreciation added a net 3.97 per cent to total cost.
Noting that the added costs will affect selling prices for property in the near term, Robinson, however, cautioned contractors against passing on the costs to consumers and clients who are increasingly demanding value for money.
The way to go, he suggested, is to find ways of reducing waste of construction materials, and to tighten their efficiencies, and do away with the 'provisional sum' built into contracts to offset losses.
