Economy

NBT confusion for banks

25 Nov 2013 - {{hitsCtrl.values.hits}}

The 2 percent Nation Building Tax (NBT) extended to banks and financial institutions in the 2014 budget have created some confusion as no explanation has been given so far as to whether the said tax would be applied to the gross turnover or the profits.

According to tax consultants, NBT is an indirect tax which generally applies to the turnover. The technical notes to the budget 2014 showed that the NBT application to banks and financial institutions is expected to earn the government a sum of Rs.3, 665 million.

According to several analysts, if NBT is applied on the gross turnover, the tax income estimated should have been higher, given the banking sector alone in 2012 reported a gross turnover of Rs.570 billion.

However, it should be noted that a top line of company could include things like fair value and unrealized gains which will be exempted from taxing.

In an earlier interview, National Development Bank ( NDB) PLC Managing Director and CEO Rajendra Theagarajah said if the NBT is applied to profits, it should be certainly manageable for the banking sector.

“However, if it is implemented on the turnover, then it is likely to be a fairly significant amount,” he noted.

“Another issue is whether or not the NBT applies across all banks, including state banks, or whether it will be restricted to private commercial banks. At this point, it is still too early to access this information,” he added.

Talking to Reuters, Commercial Bank Deputy Chairman Dharma Dheeraisnghe said the new tax “will have an impact on the profits of banks and financial institutions.” Commercial Bank is the largest private sector bank in the country.

But the government needs to get revenue up to 15-16 percent of GDP he said, and taxes on banking came down two years ago, “so I do not have an objection to this tax.”

Meanwhile the Central Bank Governor Ajith Nivard Cabraal was quoted by Reuters as saying that the new tax will be passed on to customers.

During a post-budget meeting, Treasury Secretary P.B Jayasundara without specifying the application of NBT on banks and financial institutions said, “We need money, and banks have plenty of money.”The nationbuilding tax is a broad-base turnover tax. Without taxes, a government can’t perform.”

Economy

NBT confusion for banks

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