Taxation in Sri Lanka

Nation Building Tax (NBT)

Nation Building Tax (NBT) Bill giving legal effect to the 2009 Budget Proposals relating to the imposition of Nation Building Tax (NBT) was passed by parliament on January 7, 2009. NBT Tax Act No. 9 came into operation with effect from February 1st 2009.

Scope
 

NBT is payable by every person ( individual, company, body of persons) or partnership who :

imports any article (other than any article in the personal baggage) into Sri Lanka or

carries on the business of manufacture of any article or

carries on the business of providing a service of any description.

Chargeability
Every liable person whose, liable turnover for any quarter exceeds Rs. 650,000/= should be registered with the Nation Building Tax (NBT) unit of the Department of Inland Revenue.

Registration for NBT

1. Every person who;

          import any article into Sri Lanka;
          carries on the business of manufacture of any article;
          carries on the business of providing a service of any description.

is liable to pay Nation Building Tax, if their turnover exceeds Rs.650,000/- for a quarter.

2. Every liable person should be registered for N.B.T. and the relevant applications can be obtained from the following
    branches. Duly filled applications to be handed over to the NBT Unit

          NBT Unit, 12th Floor, Inland Revenue Department, Chittampalam A. Gardiner Mawatha, Colombo 02.
          TaxPayers Service Unit, 1st Floor, Inland Revenue Department, Chittampalam A. Gardiner Mawatha, Colombo 02.
          Every regional office.

3. As this tax is administered through the main computer system of the Inland Revenue Department, every person must
    have a TaxPayer Identification Number (TIN). TaxPayer Identification number can be obtained from Tax Payers
    Services Unit.

4. The persons involved in a business of import and sales, are not necessary to be registered at the Inland Revenue
    Department. They have to pay NBT to the Custom Department at the point of import.

Issuing and Receiving of Returns

1. NBT returns to be furnished on or before 20th of the month immediately succeeding the end of that relevant quarter.
    (Returns to be furnished quarterly basis)

2. Data printed returns are sent by post through Data Processing Unit.

3. Returns to be furnished to the NBT Unit, 12th Floor, Inland Revenue Department, Chittampalam A. Gardiner Mawatha, Colombo 02.

Payments of Nation Building Tax (NBT)

1. NBT is payable by every liable person on a self assessment basis in three installments for any relevant quarter in
    following manner.

          First Payment – an amount equivalent to one third of the tax payable for that relevant quarter on or before the
             20th day of the second month of that relevant quarter.
          Second Payment – an amount equivalent to one third of the tax payable for that relevant quarter on or before
             the 20th day of the third month of that relevant quarter.
          Third (Final) Payment – an amount equivalent to the balance of the tax payable for that relevant quarter on or
             before the 20th day of the month immediately succeeding the end of that relevant quarter.

2. For the purpose of determining the value of an installment, the liable turnover of the relevant quarter to be
    estimated, base on the turnover of the particular quarter of the previous year or the turnover of the 1st month of
    that quarter, and the tax is to be calculated applying the correct rate and 1/3 of it to be paid as an installment.

3. Remittance forms are sent by post through the Data Processing Unit. (TaxPayers are requested to mention the
    correct period code in remittance slip when the payments are made. Ex. 1st installment of 3rd quarter 2009 – 09091)

4. NBT can be paid to any branch of Bank of Ceylon which facilitate the payment of VAT.

Rates
1% on the liable turnover from 1/2/2009 to 30/4/2009; and

3% on the liable turnover with effect from 1/5/2009

The Nation Building Tax (NBT) rate applicable to turnover from the sale of rice manufactured from locally procured paddy is reduced from 3% to 1.5% from 01/07/2009.

Liable Turnover
In the case of importer; the value of any article ascertained under section 6 of the Value Added Tax Act for the
      purpose of importation.

In the case of manufacturer; the proceeds receivable whether received or not from the manufacture and sale in
     Sri Lanka.

In the case of service provider; the proceeds receivable whether received or not.

Bad debts, VAT and Excise Duty should not include to the liable turnover.

Credit for NBT
Only a manufacturer is entitle for a credit of NBT paid by him and even it should be in respect of any article imported by him, or purchased by him from another NBT registered manufactured and also such article should have been used exclusively in his business of manufacture.

A service provider is not entitling for any credit for NBT paid by him.

If there is any balance can be carried forward to be set off against the NBT payable in the subsequent quarter. However, there are no refunds of NBT to any registered person.

Exemptions:
There is a great deal of articles and services which are not liable to tax.

Debits Tax

Debit tax was introduced with the enactment of Debit Tax Act No. 16 of 2002 effective on 1 st of June, 2002. This was amended in 2003 and in 2007. The debit tax shall be levied at the rate of 0.1% on the total liable debits made during each calendar month from any current account maintained at a Commercial Bank or a Specialized Bank or from each savings account maintained at a Commercial Bank, a Specialized Bank or a Finance Companies. This is applicable on debits which exceeds Rs. 20,000/- per month.

Repeal of Debits Tax Act

With effect from 01.04.2011, Debits Tax Act has been repealed by Amendment Act. No.14 of 2011, and therefore, debits tax will not be collected by commercial banks, specialized banks or any financial institution.

However, the provisions of the Act will be applicable for three years in respect of outstanding matters to be dealt with under the Act irrespective of the fact that Act has been repealed. Accordingly, any commercial bank, specialized bank or any financial institution is required to collect such tax and remit the tax so collected.

Further, any action which is still proceeding or matter filed under the provision of the Act is to be continued until they are concluded. If such action cannot be concluded before the given three year period, then period may be extended.

Economic Service Charge (ESC)

Economic Service Charge (ESC) has been administered since 1st of April 2006 under the Economic Service Charge (ESC) Act No. 13 of 2006, as amended by Economic Service Charge Amendment Acts No. 15 of 2007, 11 of 2008 and 16 of 2009. prior to this, it has been administered under Finance Acts 11 of 2004 and 11 of 2005 from 01.04.2004 up to 01.04.2006. ESC is allowed to be deducted from the income tax payable in that year of assessment and any ESC which cannot be so deducted is carried forward and deducted from the income tax payable, to the extent that it could be deducted in the succeeding four years of assessments. ESC thus operates as an advance payment of income tax in respect of any person whose liability to income tax exceeds the ESC liability and such person bears no burden of the ESC. A person whose contribution to income tax do not exceed ESC liability, for instance in the case of a loss making business, ESC has to be paid and no deductions can be effected elsewhere.

Tax Liability
Every person or partnership which carries on a trade, business, profession or vocation except Cooperative Societies, non resident aviation and shipping companies, local Government bodies and Government Departments will have to pay Economic Service Charge whether such person or partnership liable to pay income tax or not.

Base
Should register for ESC if the turnover of a quarter is Rs. 7.5 million or more. The maximum economic service charge to be paid for a quarter is limited to
              Rs. 15 million - up to 31/03/2009
              Rs. 30 million - from 01/04/2009
Even if the tax payable by you for the relevant quarter exceeds rs. 30 million as per your turnover, you will have to pay only Rs. 30 million.

Grace Period
A grace period of 36 months from the commencement of the business in respect of manufacturers was there from 1/4/2007 to 31/3/2009. Accordingly, during that period the turnover was not liable even if the turnover exceeded the above limits. However, this was removed from 1/4/2009.

Turnover
The amount due from every transaction whether actually received or not. But following are not included to the liable turnover.
               VAT
               Proceeds from sale of capital assets.
               Bad debts
For the period from 01/01/2009 to 31/12/2009 the following receipts are also not to be included to the liable turnover.
               Receipts from export of goods.
               Receipt from supply of goods by manufactures to exporters for export.
               Receipts from the operating of Tourist Hotels approved by the Tourist Development Authority of Sri Lanka.

Set off of Tax
ESC paid can be set off against the Income Tax payable for the relevant year of assessment. A balance, if any can be brough forward and set against the 4 subsequent years of assessments.

Returns
Return of ESC should be furnished on or before 20th day of the month immediately succeeding the end of that relevant quarter.

1st Quarter - April - June - Prior to 20th July
2nd Quarter - July - September - Prior to 20th October
3rd Quarter -   October - December - Prior to 20th January
4th Quarter -   January - March - Prior to 20th April

Returns should be submitted to
 
Relevant Branch

Payment of Tax

ESC is payable on self assessment basis in four quarter. Payments should be made using the specific form and the period of tax should be correctly indicated.
(Ex. 30/06/2009 quarter 09101)

1st Quarter - on or before the 20th July

2st Quarter - on or before the 20th October

3st Quarter - on or before the 20th January

4st Quarter - on or before the 20th April

Download

ESC Manual
ESC Guide

More Details

Tax Payer Service Unit - 2328702
Secretariat Unit - 2338635

Share Transaction Levy

Finance Act No. 5 of 2005 was enacted with effect from 01.01.2005 to charge a levy on share transactions taking place in the stock exchange. The rate applicable is 0.2 on the seller on disposal value of the share and the 0.2% on the buyer on the purchase value of the share. As this is purely based on the transaction taking place in the stock exchange, revenue generated under this Act fluctuates in accordance with the volume of the share market dealings.

Income Tax (IT)

Income tax is charged on the basis of the provisions of the Inland Revenue Act No. 10 of 2006 as amended by Inland Revenue Amendment Acts No. 10 of 2007, 9 of 2008 and 19 of 2009. the Inland Revenue Act provides the legal authority to charge, levy and collect income tax on the profits and income of every person, which arose or is arising to such person for every year of assessment commencing on or after 1st of April, 2006. In respect of a person who is deemed to be resident in Sri Lanka is chargeable with income tax in respect of his income from Sri Lanka and income derived by him from outside Sri Lanka. The liability to income tax therefore extends to his global income. A person who is deemed to be non-resident in Sri Lanka is chargeable with income tax in respect of only the profits and income, arising or derived from Sri Lanka.

Payment of Tax

• IT is payable on self assessment basis in five Installments.

1st Installment	- on or before the 15th day of the month of August that relevant year
2nd Installment	- on or before the 15th day of the month of November that relevant year
3rd Installment	- on or before the 15th day of the month of February that next year
4th Installment	- on or before the 15th day of the month of May that next year
Final Installment	- on or before the 30th day of the month of September that next year

Discount on Income Tax payable by Individuals
Any individuals who makes any quarterly self-assessment income tax payment, one month before the due date, is entitled to a 10% discount thereon (not exceeding such percentage on the instalment based on the current year profits).

Furnishing Income Tax (IT) Returns

Due date :

Return of Income Tax (IT) should be furnished on or before 30^th day of the month of November that end of relevant assessment year.

Submitted to :
Relevant Branch

Value Added Tax

Value Added Tax (VAT) is introduced by the Act No.14 of 2002 and is in force from 1st August, 2002. VAT Act replaced the Goods and Services Tax (GST) which was almost similar tax on the consumption of goods and services.

It is a tax on domestic consumption of goods and services. The goods imported into Sri Lanka and goods and services supplied within the territorial limits of Sri Lanka are the subject mater of this tax. It is a multi stage tax levied on the incremental Value at every stage in the production and distribution chain of Goods and Services. The tax is borne by the final or the ultimate consumer of Goods or services. It is an indirect tax and the Government will receive at the end, through all the intermediary suppliers in the chain of production and distribution, an amount equal to the amount paid by the final consumer.

VAT is not charged on certain imports and on retail and wholesale supply of goods. There are certain supplies of goods and services, which is exempt from VAT.

Chargeability for Value Added Tax excluding chargeability on Financial Services

• Manufactures
• Importers
• Services providers
• Suppliers who supply goods under tender agreement
• Suppliers whose supplies are more than Rs. 500 million  per quarter ( including exempt and excluded supplies)

Who are liable for Registration?

Every person who carries on a taxable activity

• If his taxable supply of goods or services or supply of goods and services,

- has exceeded Rs.3, 000,000 per quarter, or
- has exceeded 12,000,000 per annum, or
- likely to exceed Rs.3,000,000 in the succeeding quarter or Rs 12 Million in the succeeding twelve months period

• Any person or partnership liable to pay VAT for any quarter commencing on or after January 01, 2013, being a  person or partnership engaged in the business of wholesale or retail trade, whose quarterly turnover/supplies exceeds Rs 500 Million (including exempt or excluded supplies)

VAT Rates

Zero Rate	0 %
Standard Rate	12 %

Registration for VAT

Firstly, a TIN Certificate should be applied & obtained from the Tax Payer Services Unit at 1st Floor (South Wing) of the Inland Revenue Building, Chittampalam A. Gardiner Mawatha, and Colombo 02. Thereafter, VAT registration can be applied from the VAT Branch at 2nd floor (South Wing) of the Inland Revenue Building, Chittampalam A. Gardiner Mawatha, Colombo 02.

Application should be made through VAT Form 11, not later than fifteen days from the date on which became liable for registration.

Documents required for registration

TIN Certificate
Certificate of Business Registration
In case of limited liability company
Memorandum & Articles of association
List of Directors
Certificate of incorporation
Copies of NIC of the proprietors/Directors of the business
Particulars of sales to prove the turnover & monthly Bank statements to prove cash receipts.
Documents to prove that exports were made continuously by such exporters

Responsibilities of a Registered person

Display the Certificate of Registration at a clearly visible place in the business premises.
Issue tax invoices (to other registered persons).
keep accounts for relevant periods.
Pay taxes and furnish returns on or before due dates.
Inform the department any change in the following without delay.
Name, Business Place, Ownership, Nature of business etc..

VAT Payments

1. Any person or partnership
• who supplies services other than Finantial Services
• who imports and supplies  of goods
• who engaged in the business of wholesale or retail sale, whose quarterly turnover/supply exceeds Rs 500 Million (including exempt or excluded supplies)

is required  to make the payment  as follows.

o        for the period 1^stday – 15^th day of a month - on or before end of the month

o        for the period 16^th day - end of a month - on or before 15^th day of the following  month

2. Any other Person or Partnership (other than those who referred in 1)
• who supplies goods manufactured by such Person or Partnership
• who engaged in supply of Financial Service

is required  to make the payment for the particular month on or before 20^th day of the following month.

Furnishing VAT Returns

Due date :
  On or before the last day  of the month after the expiry of each taxable period ( may be monthly or quarterly)

Hand Over to :
All VAT Returns should be handed over to the DPRA Unit, 7^th Floor (North Wing) of Inland Revenue building, Other than, Returns for Special Projects and VAT on Financial Services
Returns for Special Projects should be handed over to the Commissioner (VAT) on the 2^nd floor of Inland Revenue building,
Returns for VAT on Financial Services should be handed over to the Banking and Financial Services Unit, on the 4^th floor of Inland Revenue building,