FTA issued clarification about the issue of the applicability of five percent VAT on labour accommodations.

“In the initial period, there was confusion whether labour accommodation is chargeable or not. Subsequently, it was clarified by the FTA that labour accommodation is treated as residential property and hence exempt from VAT. In essence, where additional services such as cleaning, Internet etc. are provided as part of the composite labour accommodation service, there is a single pricing and it is provided by the same supplier, it will be treated as residential property and will be exempt from VAT,” said Girish Chand, director at MCA Management Consultants.

He also pointed out that where the labour accommodation is a mixed supply consisting of various elements and it is charged separately, the tax treatment of each component will have to be determined separately.

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