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BUDGET/COST PLAN Continued.. Part 3 of 3

To start from where we left off in the previous post, here we will deal with the following:

  • C - Contingencies - which would involve provisional costs to be incorporated for any expected/unexpected deviations.
           Contingencies are costs which we assume for certain changes that are anticipated, this is sometimes considered as a percentage of works or sometimes just as lump sum amounts.  Most of the time, these amounts are utilized only under specific approval. But depending on the stage* at which the budget/cost plan is being presented, percentages can be allotted for the heads of design, planning and construction.

        * Stages of budgeting will be a separate post, since I don't prefer clouding more information
             under each post.
  • D - Escalation - which involves provision for market fluctuations in material, labour and fuel costs.
          Escalation is quite well defined in the Indian market, the point of reference being the RBI indices also, most contracts cover this point with clarity due to the large fluctuations that material prices undergo.
          
          The calculation involved in determining escalation is quite systematic, hence I would be dealing with it as a separate post. 
  • E - Taxes - which involves the provision for any governmental levies on the construction.
          Taxes are a subjective matter, this is largely dealt with by the Accounting and Financing teams, however as a QS it is important to know the basic taxation structure involved in your location. My experience being limited to the Middle East and India, I will limit myself to these two regions and try to explain my basic understanding of it.

         Taxes in the Middle East in particular GCC:
          As of now (year of 2017) there are no taxes in place for the construction industry other than the indirect taxes involved in terms of excise duty. However, there is an ongoing plan for the implementation of Value Added Tax (VAT). The process flow of the implementation is still not clear.

         Taxes in India:
India before GST: the reason I have put this in here is so that it could be a reference to certain
locations that follow this method.
Taxes pre-GST involved VAT, service tax, excise duty for port transfers and various cess'. 
VAT was calculated for all materials, direct procured material such as steel at 4% and indirect procured material such as cement and RMC at 12.5% (this % was fluctuating state to state).
Service Tax as the name suggests were taxes levied on any form of services including consultancy and labour, this was initially at 10% and was later increased to 12.5%.
Excise Duty was charged based on the ports at which various imported goods arrived, this is only limited to items that were imported.
Finally, the cess, this was charged as labour cess, Swach Bharat cess and the likes, this was
considered as a minimal percentage of the taxes themselves.

India with GST: The taxation system at present in India is much simpler in terms of the number of taxes involved, however the percentage of the taxes is still in a bit of a muddle, which I am sure is just a teething issue and will be sorted out eventually. So this system involves a uniform tax across the country and hence has implication in direct percentages.

Well, that is quite a lot for a single post. Hope you got through it without much difficulty. 

The next post will relate to the Stages of Budget/Cost Plan.

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