Computation of margins
It is very important for importer, manufacturers and service
renderers to fix their margin properly on sales to secure targeted
profit. Targeted margin is to be achieved after payment of VAT, NBT and
turnover tax to provincial councils.
In accordance with a 2011 Budge Proposal turnover tax to Provincial
Councils will be abolished from January 1, 2011. Further wholesale and
retail trade would be included in the Nation Building Tax system.
Further NBT rate would be reduced from 3 percent to 2 percent
tentatively from January 1, 2011.
The following information is necessary;
* Cost - Landed cost of an article includes CIF, all Customs duties
bank and clearance charges VAT must be excluded from landed cost as it
is a selling overhead. However NBT has to be included in the landed cost
in the case of importers.
* In the case of the manufacturer who imports articles for
manufacturing, NBT paid at Customs is excluded from cost as it is a
selling overhead
*In the case of service renderers NBT paid at source has to be
included in the cost as it cannot be claimed as qualified input claim.
It is a selling overhead as well (double charges). This must be
understood clearly. Margins are usually computed on sales which include
VAT as well. Some people compute margins, on sales (excluding vat) and
cost as well. The following mathematical formula is important to
a. Compute margin on agreed sales and cost
b. Compute sales on agreed margin and cost
c. Compute cost on agreed margin and sales
By using this formula discussion could be held with foreign
principals pertaining to CIF and margin.
S = Sales (including VAT)
C = Cost (landed cost)
M = Margin in percent on sales
VAT = 12 percent only
NBT = 2 percent only
I hope the business community will benefit from this information.
S R Balachandran BSc., FCA, FCMA (Sri Lanka) Council Member The
National Chamber of Commerce of Sri Lanka |