Nation Building Tax (NBT) came in to light at the Budget Proposals 2009 which was presented to the House of Parliament on 6th November 2008 by the President and Minister of Finance. The background which compelled to impose this tax was stated in his Budget Speech. It stated as follows;

"Speaker, this country faced a total draw back consequent to terrorist activities that prevailed for over 30 years. Terrorists destroyed railways, ports, highways, bridges, state institutions, hospitals and schools in the North and East. Once congested areas became uninhabited. A large number of brave soldiers of security forces sacrificed their lives. Some became disabled and helpless. A large number of people become homeless and shifted themselves to temporary shelters. Public and private properties were destroyed in various parts of the island including Colombo. Places of worship were also destroyed. The time has now come to rebuild these. As such we should accord priority for development and welfare, whilst seeking a political solution. We need to pay greater attention to the people in the North and South who were affected by terrorism and thus became helpless and also to the brave soldiers who sacrificed their lives to combat terrorism and their families. As such I propose to impose a Nation Building Tax as a social contribution towards welfare of security forces, and to rebuild communities and infrastructure facilities affected by terrorism. This tax which would be 1 percent, will be applicable on the turnover on imports, manufacturing or services other than on the banking and financial sector, for a period of 2 years. In addition to the revenue collected from this tax, we will also seek the assistance of our friendly countries to obtain additional aid to implement nation building programs.

I seek the cooperation of all Hon. Members of this house to approve the Bill relating to the imposition of this levy, as an urgent Bill in this year itself".

It should be noted that the main objective of this tax is not only to generate revenue to the state but make aware and make the general public to contribute towards welfare of security forces, to rebuild communities and infrastructure facilities affected by terrorism.

NBT Bill was passed by Parliament on January 7, 2009 giving legal effect to the Proposal for the imposition and collection of NBT as announced in 2009 Budget. Accordingly, the NBT imposed under Nation Building Tax Act No 9 of 2009 and came in to operation with effect from February 1, 2009.

The provisions of this Act shall apply to every person who—

NBT be charged from every person to whom this Act applies calculated –

in the following manner-

u in the case of a person [above (a)] who imports any article into Sri Lanka on or after January 1, 2009 the tax shall be chargeable in respect of the liable turnover of such person arising from the importation into Sri Lanka of such article; and

u in the case of a person [above (b) or (c)] for every quarter commencing on or after January 1, 2009 the tax shall be chargeable in respect of the liable turnover of such person for such relevant quarter.

Provided however, any bad debt recovered in any relevant quarter, shall be included in the relevant turnover of that relevant quarter.

The Taxpayer Identification Number (TIN) already registered for importation of goods can be used for NBT purposes as well. (A new registration for NBT is not required.)

Registration is required, if the turnover for a quarter exceeds Rs.650, 000/-. However, every taxpayer already registered for VAT will be registered for NBT as well.

Other persons or partnerships are required to apply for NBT registration giving the name, postal address, turnover for the quarter ended 31, March, 2009 (which can be estimated on the basis of previous years) and the TIN already allocated. If no TIN has been allocated, an application should be made to the Taxpayer Service Unit (1st Floor, Inland Revenue Department, Ascott Building, No.464, T.B.Jayah Mawatha, Colombo 10), and obtain a TIN assigned, before seeking the registration for NBT.

NBT Unit is located at 2nd Floor, Inland Revenue Department, No. 33, Park Street, Colombo 02.

Payment of the Tax should be made in the following manner;

to the Commissioner General, in such manner as may be specified by him in that behalf.

("one third of the tax payable" in relation to any relevant quarter means one third of the Tax calculated on the sum estimated by such person to be the liable turnover for that relevant quarter).

Where any liable person whose article being an article which is used exclusively in his business of manufacture, he shall be entitled to credit for the tax so paid against the tax payable for that relevant quarter:

Provided that where such credit for any relevant quarter exceeds the tax so payable for that quarter, the excess shall be deemed to be an advance payment of the tax made for the relevant quarter immediately succeeding that relevant quarter.

Where a NBT registered manufacturer sells any article manufactured by him to another manufacturer, it is required to ensure that the NBT number is entered in the invoice, in order to facilitate tax credit.

Return of NBT for every quarter should be furnished on or before 20th day of the month commencing after the expiry of each relevant quarter. Returns should be submitted to NBT Unit 2nd Floor, Inland Revenue Department, No. 33, Park Street, Colombo 02.

Every liable person referred to in NBT Act shall give notice in writing to the Commissioner General, of his chargeability to the tax for that quarter, not later than the fifteenth day of the last month of that relevant quarter. The notification shall disclose the name, the postal address, the Taxpayer-Identification Number (TIN) if any, or the income tax file number if any, and such other information as the Commissioner General may specify by Order published in the Gazette.

The Director General of Customs shall collect from every such person in respect of every article imported by such person, at the time such article is imported, and shall make an endorsement on the import invoice relating to such article specifying the amount so collected.

(Certain provisions of the Inland Revenue Act No 10 of 2006 to apply)

The provisions in sections 106, 107, 108 and 112 of Chapter XII relating to Returns etc, Chapter XXII relating to Assessments, Chapter XXIII relating to Appeals, Chapter XXIV relating to Finality of Assessments and Penalty for Incorrect Returns, Chapter XXV relating to Tax in Default and Sums Added Thereto, Chapter XXVI relating to Recovery of Tax, Chapter XXVII relating to Miscellaneous, Chapter XXIX relating to penalties and Offences, Section 209 of Chapter XXX relating to Administration and Chapter XXXI on General matters, of the Inland Revenue Act, shall mutatis mutandis apply to the furnishing of returns, assessments, appeal against assessments, finality of assessments and penalty for incorrect returns, tax in default and sums added thereto, recovery of tax, miscellaneous, penalties and offences, administration, and general matters under this Act subject to the certain modifications.

(Section 10 of NBT Act No. 9 of 2009)

"article" includes any goods, material or any agricultural or horticultural produce, but does not include any excepted article specified in Part I of the Schedule to NBT Act;

u such article ; or

u any other article manufactured by utilizing such article, has in fact been exported from Sri Lanka;

u display at an exhibition;

u the temporary use in Sri Lanka in any project approved by the Minister;

u for the purposes of repairs to that article to be carried out in Sri Lanka; or

u any other similar purpose, and is to be re-shipped, within a period of one year from the date of importation of such article to Sri Lanka;

(Section 10 of NBT Act No. 9 of 2009)

"Service" does not include any excepted service specified in Part II of the Schedule to NBT Act;