The Sri Lankan government removed the ‘Nation Building Tax’ with effect from December 01, 2019. You can find more details through the Notice to the Taxpayers – Change of Nation Building Tax published by the Inland Revenue Department.
However, under this Notice, businesses were still liable to pay the NBT for the quarter ending with December 31, 2019. Any NBT amount that was due would only apply to the turnover generated from October 01 to November 30, 2019.
NBT (Nation Building Tax), introduced in 2009, applied to importers, manufacturers, retail and wholesale operators of goods and services. This article will help you understand the scope of NBT, who is eligible for the payment, and guide how you should manage your NBT obligations as a business owner. We’ve also addressed some of the common problems you will face when dealing with NBT and provided answers.
Nation Building Tax (NBT) was introduced through the Nation Building Tax Act. No. 9 of 2009, which came into effect on February 01, 2009. This tax’s primary aim was to collect revenue to finance the rebuilding of infrastructure affected by the civil war that took place from 1983 – 2009.
NBT is charged based on the liable turnover (amount of money made by a business within a specific time). However, there are some conditions under the ACT that determine how to calculate NBT.
Suppose any of the goods or services are the subject of NBT exemptions in Sri Lanka. In that case, those goods or services are not considered for ‘liable turnover.’ These exemptions are covered in detail further down this guide.
NBT is payable by every individual, company, body of persons (e.g., co-operative societies, trusts), and partnerships that carry out any of the following business activities in Sri Lanka.
While the above criteria includes all businesses, they do not have to pay NBT unless they meet a specific earning level. The threshold criteria is as follows:
Depending on the type of business, how liable turnover gets calculated is different. Some certain goods and services are exempt from NBT and do not count towards the turnover.
Importers – The imports’ value is calculated based on the Value Added Tax Act No 14 of 2002 excluding any exempted articles. (The total import value gets calculated as follows: 10% increase on the value determined for the payment of customs duty + the value of any customs duties including surcharges, cess, port and airport development levies as well as any excise duties payable)
Manufacturers or service providers – Any amounts that are receivable, whether they have been received or not, from the sale of manufactured goods or provision of services in Sri Lanka after deducting:
Wholesale or retail traders – Any payments or amounts that are receivable, whether they have been received or not, from the sale of any article. However the following articles are exempted.
Financial service providers – According subsections 4 and 5 of Section 25 (C) of Value Added Tax Act. No. 14 of 2002, when calculating the ‘liable turnover’ for these business types, what gets considered is the value addition created by such businesses.
Real estate businesses – When calculating the NBT up until the 31st of December, 2014, it is to be calculated on the business’s total turnover. For the period beginning from the 1st of January, 2015, NBT will only be calculated based on the value addition created by the business in line with subsection 7 of Section 5 of Value Added Tax Act No. 14 of 2002.
|Nature of the business||Rate|
|Manufacturer* (other than any wholesale or retail sales turnover)||2%|
|Any service provider (Including financial services)||2%|
|Distributor (25% of the liable turnover)||2%|
|Wholesale or Retail (50% of the liable turnover)||2%|
|Business of real estate and improvement||2%|
Manufacturers are also allowed to claim NBT tax credits. To do this, manufacturers can apply to reduce the amount of NBT they are liable to pay if they have paid any of the below types of taxes.
For a manufacturer to qualify for a tax credit, they need to satisfy the below requirements.
There could be instances where a manufacturer could be eligible to claim a tax credit that exceeds the amount they have to pay in tax for that quarter. In such cases, the additional amount can be used as an advance payment to settle his NBT liability in the next quarter.
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When dealing with NBT, you are responsible for calculating and making the payments on time. NBT is payable for every quarter at the specified rate on the liable turnover for that quarter. The quarters applicable are as follows:
You can make the NBT payments in three monthly installments. Each installment cannot be less than ⅓ of the amount payable for the quarter.
|1st Installment||On or before the 20th day of the second month of that relevant quarter|
|2nd Installment||On or before the 20th day of the third month of that relevant quarter|
|3rd Installment||On or before the 20th day of the month immediately succeeding the end of that relevant quarter|
Any NBT liable for imports should be paid at the time of the import.
Once you make the relevant payments, you are also responsible for filing the applicable tax returns to comply with your tax obligations.
You can submit your NBT return in two ways:
You can also refer to the NBT quick guide developed by the inland revenue department for more information.
Whatever the method you choose, NBT returns should be submitted on a quarterly basis on or before the 20th day of the following month of that relevant quarter.
As the Nation Building Tax has been abolished by the government, you do not need to take any further steps in ensuring compliance with this. If you have other tax-related queries or want to learn more about dealing with different taxes you can read our comprehensive guide to taxation in Sri Lanka 2020 or get in touch with us for a free consultation.
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