According to the Budget Proposals announced on 6th November 2008, a new levy called Nation Building Levy is being introduced with effect from 1st January 2009 for a period of two years (8 quarters) only.

The liability is at 1 per cent on the turnover where the turnover exceeds the threshold of Rs. 100,000/- per quarter in the case of:

a) Importers - On CIF value only

b)Manufacturers - On Turnover (Excluding Taxes*) less Bad Debts

c) Service providers

*VAT and Excise Duty paid under Excise Duty (Special Provisions) Act No. 13 of 1989.

Several exemptions (nearly 3 1) have been granted, such as Supply of Electricity and Water; Banking or Finance etc.

Manufacturers are entitled to claim credit for the levy paid on Raw Material

a) Imported (other than Plant, Machinery etc) and

b) Purchased from any other Manufacturer

Excess input levy over liability for a quarter may be carried forward for future set off. No refund is possible.

With the view to securing the co-operation of the Tax Payers, I wish to submit the following suggestions.

1. Input claim should be made available to Service Providers as well. They import or purchase materials from manufacturers and utilise same for the supply of their services. The value added service provided by them should be considered by the Department of Inland Revenue.

2. NBL embedded in the services rendered to manufacturers and other service providers also should be allowed as input claim.

3. Manufacturers and Service Providers should show the NBL component on the invoices, if requested for, by their customers.

Then the VAT registered sales invoices would be thus

Value of Supply 100

VAT 12

NBL 1

Total 113

Non VAT registered sales -invoice would be thus

Value of Supply 100

NBL 1

101

This will prevent excessive charging of NBL by the suppliers.

Importers, if requested for by their customers should state the NBL paid on the Import (On CIF value) on the face of the invoice below the total column or a separate letter, on monthly basis showing computation of levy input for all invoices.

This practice was followed prior to 31.03.1998 when Business Turnover Tax was in force.

4. Total NBL incurred by importers should be allowed as expenditure in arriving at the taxable income. This is very important. When, National Security Levy was introduced on 1.1.1990 at the rate of 1%, it as fully allowed for tax purposes.

5. Balance Input NBL not absorbed against output NBL of Manufacturers and Service Providers at the end of the two years, should be allowed to be written off as an allowable expenditure for tax purposes.

6. It will be a difficult task to identify NBL liable persons, especially when they are non-income tax payers (No tax file is maintained)

Eg: Hair Dressing Saloon, Beauticians, Laundry Services, Hotels and Restaurants not registered for VAT (who do not issue receipts but have turnover of more than Rs. 100,000/- per quarter.)

It is best that a National Awareness Program using the media in all provinces be arranged requesting for voluntary declaration and payment, assuring that the compliance cases would not be harassed to pay income tax for past years. They may open tax files now if necessary. Issuing Assessment Notices on adhoc basis results in dissatisfaction and frustration.

I hope public at large make a sincere effort to make this Nation Building Program a success.

S. R. Balachandran B.Sc, FCA, FSCMA

Council Member