What is Value Added Tax (VAT)
VAT is a consumption tax charged on taxable goods and taxable services soldl provided locally or imported into Kenya.
VAT Law is contained in the Value Added Tax Act Cap 476 Laws of Kenya. The Act is available on the KRA website, www.kra.go.kg.
The VAT Act 2013 implementation date is 2″“ September 2013.
Who Should Pay VAT?
VAT is payable by a registered person making taxable supplies. The registered person recovers the VAT from the receiver of the taxable supply in addition to the cost of the supply.
VAT on imported taxable goods is due and payable by the importer at the time of importation and it is charged as if it were duty of customs.
VAT on taxable services is payable by the registered person receiving the service and is due when the service is supplied.
Who Should Register for VAT? ‘
Any person supplying or who expects to supply taxable goods and taxable services value of which is Kshs. 5 Million or more in a year qualifies to register for VAT.
In determining the registration threshold, only the turnover on taxable supplies is taken into account. Taxable supply of a capital asset of the person and taxable supplies solely made upon sale of whole or part of the persons’ business should not be accounted for when determining the registration threshold.
The VAT Law also allows for voluntary registration for persons below the annual 5M threshold.
This is to enable the person to compete fairly for the market share.
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What are the Current VAT Rates?
The following are the two rates of tax:
– 16% applicable to taxable supplies other than the zero rated supplies.
~ 0% applicable to zero rated supplies listed in the second schedule to the VAT Act.
Suppliers of zero rated supplies are entitled to claim input tax incurred in the course of making the zero rated supplies.
When is VAT due and Payable?
VAT is due and payable when a supply is made. The time of the supply including supply of imported services is the earlier of the following:
– the date when the goods are delivered or services performed;
– the date a certificate is issued by an architect, surveyor or any other person acting as a consultant in a supervisory capacity;
– the date an invoice for the supply is issued; or
~ the date when payment for the supply is received in whole or part.
The time of supply of goods by means of a vending machine, meter, or other device operated by use of coin, note or token shall be the time the coin, note or the token is taken from the machine, meter, or other device by or on behalf of the supplier.
Where goods are supplied under a rental agreement, goods or services are supplied through meter or under an agreement or law that provides for periodic payments, the goods or services shall be treated as successfully supplied for successive parts of the period of the lease or agreement or as determined by the law. The time of each successive supply shall be the earlier of the date on which the payment for the successive supply is due or received.
A registered person may defer payment of the tax due to a date not later than 20″‘ of the month succeeding that in which the tax became due. Any unpaid tax attracts an interest of 2% per month.
How is the TAX due and Payable Computed? Q. l
The VAT due and payable to the Commissioner is the difference between the Output Tax and the Input Tax.
Output Tax is the tax charged on sale of taxable supplies by the registered person.
Input tax is the tax paid or payable by a registered person for local taxable supplies or imported taxable supplies for use in the registered business.
The registered person may at the end of the tax period in which the supply or the importation occurred deduct the input tax from the output tax subject to availability of appropriate documentations. Input tax is valid for deduction within six months from when the supply or importation occurred.
Any excess input tax is carried forward and deducted in the next tax period. However, the Commissioner may refund the registered person such excess input tax if satisfied that it arises from zero rated supplies.
What is the Difference Between Exempt and Zero Rated Supplies
Exempt supplies are goods and services which are not subject to VAT. Persons dealing solely with exempt supplies are not required to register for and SHOULD NOT charge VAT on any supply of the same. The exempt goods and services are listed in the first schedule to the VAT Act 2013.
Zero rated supplies are taxable but at the rate of zero. Suppliers are required to register if eligible and are entitled to input tax deduction. Taxpayers dealing wholly on Zero rated supplies are entitled to a refund and should make application as appropriate. Zero rated supplies are listed in the second schedule.
What are the Documents Required to Support Input Tax Deduction?
The following are the documents required to support input tax deduction:
– An original Invoice or certified copy;
~ A custom entry duly certified by a proper officer and a payment receipt for the tax;
– A customs receipt and certificate signed by a proper customs officer stating the amount of tax paid in case of goods purchased from customs auction;
– A credit note received in case of returned goods and or valid adjustment of an invoice by the registered person ;
– A debit note received in respect of an additional charge of a taxable supply earlier invoiced.
NB. A credit note where applicable should be issued within six months after the issue of the relevant invoice. A credit or debit note issued should be serially numbered and shall include details of the name, address and PIN of the person to whom it is issued and should clearly relate to the supply made and the tax originally charged. The registered person is required to
maintain proper records to support all transactions.
What Other Records Should A Vat Registered Person Keep? Q
A registered person should keep the following records:
– Copies of all tax invoices and simplified tax invoices issued in a serial order number or certified copies of the original invoices;
– Copies of all credit and debit notes issued in a chronological order;
– Purchase Invoices, Copies of customs entries, receipts for the payment of customs duty or tax, credit and debit notes received filed chronologically;
~ Details of the amount of tax charged on supply made or received;
– Tax account showing the totals of the output tax and the input tax in each tax period and a net total of the tax payable or the excess tax carried forward (VAT Account);
– Copies of stock records kept periodically;
– Details of each supply of goods and services from the business premises unless such details are captured at the time of the supply on the invoices issued at or before the time the taxable supplies are moved;
– Such other records or accounts as the Commissioner may specify in writing.
The records should be kept in Kenya for a period of 5 years either in English or Kiswahili.
Deduction of Input Tax g
Deductible input tax shall only apply to supplies directly attributable to taxable supplies. If the taxable supply to or a taxable import by a registered person partly attributes to making taxable supplies and partly for another use for a particular tax period, the input tax shall be determined as follows:
– Full deduction of all the input tax directly attributed to taxable supplies; No input tax deduction on supplies directly attributed to other use;
– Deduction of input tax attributable to both taxable supplies and other use is computed in according to the follow formular:
A is the amount of input tax payable by the registered person during the tax period on acquisition that attributes partly to making taxable supplies and partly for other use;
B is the value of all taxable supplies made by the registered person during the period in Kenya;
C is the value of all supplies made by the registered person during the period in Kenya.
NB: Where the fraction of the formula is above 90%, the registered person shall deduct the whole input tax while if below 10%, no deduction shall be allowed.
Prohibited Input Tax g
A registered person shall not be allowed input tax deduction on purchase of the following supplies:
~ Passenger cars or mini buses, and the repair and maintenance thereof including spare parts , unless the passenger cars or minibuses are acquired by the registered person exclusively for the purpose of making taxable supply of that automobile in
the ordinary course of business of selling or hiring of passenger car or mini buses.
– Entertainment, restaurant and accommodation services unless where such services are provided in the ordinary course of the taxable business.
No tax shall be charged on the supply on which no input tax was allowed for deduction.
Relief Of Tax Paid Prior to Registration?
The VAT Act provides for relief of tax paid on exempt supplies that become taxable and also where a person registers for VAT had incurred input tax on taxable supplies intended for making taxable supplies.
The claim for relief should be lodged within three months from the date of registration or from the date the supplies became taxable.
This applies to supplies purchased twenty four months immediately preceding registration or the date exempt supplies became taxable.
The registered person shall be allowed to make appropriate deduction of the relief claim from the tax payable on his next return once the Commissioner is satisfied that the claim is justified.
Refund or Tax Under the VAT ACT
The Commissioner can refund tax under the following circumstances:
– Tax paid in error on any supply: The claimant should lodge a claim within 12 months from the date the tax was paid.
– Bad debt: Refundable to a registered person who has accounted and paid tax on a supply but has not received any payment after a period of 3 years from the date of that supply. Claim for refund for bad debt should be done within 5 years after which
it becomes invalid. If the registered person recovers the tax from the recipient of the supply after receiving the refund, such tax shall be paid to the commissioner within 30 days after the recovery date.
NB. Tax refunded in error shall be demanded from the person the refund hasbeen erroneously made and payment should be made within 30 days after the demand by the Commissioner.
Due Date for Submission Of VAT Returns ( VAT 3’5)
VAT return in respect of each tax period is submitted on or before the 20th day after the end of that tax period. The tax period means one calendar month.
A registered person may apply to the Commissioner in writing for an extension of the time to submit a return. The application should be made before the due date for submission of the return.
The Commissioner may make an assessment of the tax payable by a registered person where the person fails to submit a return, keep proper books of account, records or documents or to register if qualified.
A registered person may file the VAT return through the KRA Online portal www.kra.go.ke/ portal. Online filers with payment returns after successful online filling will generate an e-slip and present it to any of our appointed banks for payment.
Penalties and Interest g
Failure to submit or late submission of a return by the due date attracts a penalty of Kshs 10,000 or 5% of the amount of tax payable under the return, whichever is higher.
Failure to pay the tax due or late payment attracts an interest of 2% per month or part thereof of the unpaid tax. The interest also accrues further interest at the same rate if not paid by the due date. The interest charged shall however not exceed 100% of the principal tax.
The penalty for any general offence committed under the VAT Act is Kshs 1,000,000 or jail term not exceeding 3 years or both.
De-Registration for VAT
A registered person who ceases to make taxable supplies or the turnover of the taxable business falls below Kshs. 5,000,000 in a year may apply to the Commissioner for de-registration.
Where a person qualifies for de-registration and fails to apply to the Commissioner, the Commissioner may by notice de-register such a person if satisfied that the person should be de-registered.
The de-registered person shall be issued with a notice of cancellation and immediately upon receipt cease to charge VAT.
A person whose registration is cancelled is required to submit a final return and pay all the tax due including the tax due on the stock at hand at the time of de-registration. Payment should be made within 15 days from the date of cancellation.