Dec Thu 2020

Team Simplebooks

Everything you need to know about Nation Building Tax (NBT) in Sri Lanka

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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. 

Table of contents
  1. What is NBT?
  2. Who should pay NBT taxes?
  3. What are the eligibility limits for NBT?
  4. How much NBT should I pay?
  5. What are tax credits?
  6. When should I pay NBT?
  7. How to submit NBT returns?
  8. Next steps

What is NBT?

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. 

  • In the case of imported articles (any goods, material, agricultural or horticultural produce), the value means the value determined for VAT under section 6 of the VAT Act. This condition does not apply if an exemption applies to the article.
  • For goods manufactured in Sri Lanka (within the specific quarter), the liable turnover means the amount that should be received during the sale of such goods, whether it has been currently received or not. 
  • For service providers, the liable turnover means the amount that should be received for that service being provided (within the specific quarter), regardless of whether that payment has been currently made or not.

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.

Who should pay NBT taxes?

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.

  • Importing
  • Manufacturing
  • Wholesale and retail sales
  • Service providers. (Including finance services and banks)

What are the eligibility limits for NBT?

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:

  1. Liable turnover from the supply of any goods or services which exceeds Rs. 3,000,000 in any quarter.
  2. Liable turnover from the processing of any locally produced agricultural produce in the preparation for sale which exceed Rs. 25,000,000 in any quarter.

How to calculate the NBT for different types of businesses?

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:

  • Bad debts incurred
  • Any Value Added Tax (VAT) paid
  • Any excise duty paid under the Excise Duty Act No.13 of 1989
  • Rebate paid under the Export Development Rebate concerning any international event as approved by the Minister of Finance.
  • Any turnover from the Supply of any goods or services concerning any international events approved by the Minister of Finance.

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.

  • Pharmaceuticals
  • Sugar, dhal, potatoes, onions, dried fish, milk powder or chillies, specified under the provisions of the Special Commodity Levy Act No. 48 of 2007, where such article is subsequently sold by the importer of such article
  • Gems or jewellery sold in foreign currency as authorised by the CBSL.
  • Any printed book.
  • Any article exported.
  • Any article sold to any exporter for export
  • Fresh milk, green leaf, cinnamon or rubber purchased from any manufacturer or producer 
  • Petrol, diesel or kerosene sold in a filling station
  • Retail sale of any article at duty free shops for payment in foreign currency
  • Distribution of LP Gas.

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. 

How much NBT should I pay?

To find out what the applicable NBT rate in Sri Lanka is for your business, refer to the table below.
Nature of the businessRate
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 improvement2%
(Source – 2018/2019 Tax Charts: Inland Revenue Department)

What are tax credits?

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.

  • Taxes incurred when importing an article
  • Taxes paid when purchasing an article

For a manufacturer to qualify for a tax credit, they need to satisfy the below requirements.

  • The purchased items must have been used exclusively for the manufacture in the course of business. 
  • Purchased items must have been purchased from a manufacturer who has registered for NBT.

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 should I pay NBT?

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:

  • 1st quarter – 1st January to 31st March
  • 2nd quarter – 1st April to 30th June
  • 3rd quarter – 1st July to 30th September
  • 4th quarter – 1st October to 31st December

You can make the NBT payments in three monthly installments. Each installment cannot be less than ⅓ of the amount payable for the quarter.

InstallmentPayment Date
1st InstallmentOn or before the 20th day of the second month of that relevant quarter
2nd InstallmentOn or before the 20th day of the third month of that relevant quarter
3rd InstallmentOn or before the 20th day of the month immediately succeeding the end of that relevant quarter

Source: http://www.ird.gov.lk/

Any NBT liable for imports should be paid at the time of the import. 

How to submit NBT returns?

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: 

  • Filing the returns manually and sending via post or presenting in person
  • Completing the process online using the e-services of the Department of Inland Revenue website.

You can also refer to the NBT quick guide developed by the inland revenue department for more information.

Source: http://www.ird.gov.lk/

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. 

Next steps

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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