As we previously informed taxation of residential projects should move from lower tax level of 5% to regular level of 19% starting 1 January 2008. There are various interests to specify “Social Housing” category which will be exempted from this increase. Besides, under current version of VAT bill any advance payments on residential projects prior to the deadline are subject of 5% rate even with completion after this date, while remaining payments after end of December 2007 will be taxed 19%.
Our view:
Under IFRS, developers are not able to book revenues until transferring the ownership. Thus this practice could lead to softening the decline in developers’ revenues in 2007 and artificially prolong a period of lower VAT. Customers will be able to sign and pay the contract fully or partially ahead, while the delivery will be after December 2007.