Brief on Value Added Tax, Kenyan Tax Law

By Kavosa Assava, LLB

V.A.T

·         An indirect tax charged

·         It is a consumption tax

·         Who is subject to VAT?

      every single person in the supply chain; the threshold is  5,000,000 a year of revenue from sales

·         It is supposed to be a very easy tax to administer

·         VAT = Output[how much VAT charged when sold] – Input[how much VAT paid when bought]

·         What is subject to VAT? For tax to be taxable, it must be written in Act. VAT Act is exclusive; every single thing is subject to VAT unless the act explicitly states otherwise.

·         Schedules in The Act specifies what is subject and what is not; classes of VAT

      Standard rate [16%]

      Exempt – there is no value and it as though the transaction never happened. No VAT is charged at all therefore whatever VAT is incurred is recovered by inflating the price of goods. [The First Schedule]

      Zero-rate [0%]- there was a transaction but at a 0% rate which is treated like an expense and owed to the business by the tax authority; claim input VAT.

·         VAT is a destination tax

·         Exports are zero rated because they are not consumed within the country

·         When is VAT due? S.12 the earlier of, the date you supplied the services, the date you issued the invoice, or date you received payment by the supplier. Usually the 20^th of the following month.

·         The taxable amount is either the amount paid for the goods or service or the market value of the good or service where you are related. You include any taxes fees, and duties payable on that good or service in calculating the VAT

Revision Notes

·         Value Added Tax (VAT) is a consumer tax charged on the supply of taxable goods or services made in Kenya and on the importation of taxable goods or services into Kenya.

·         The rate for VAT is either 0% or 16%.

·         All traders who have a turnover of taxable supplies of KES 5 million per annum and above are required by law to register for VAT, and then collect and remit VAT on their taxable supplies, with an allowance to recover tax paid on their purchase of inputs.

·         Only registered traders are required to charge VAT, though there are provisions for voluntary registration even when a trader is below the KES 5 million threshold.

·         The supply or importation of goods or services that are designated as exempt are not subject to VAT.

·         Zero-rated VAT is applicable to goods and services exported from Kenya, goods and services supplied to EPZs and the supply of coffee and tea for export to coffee and tea auction centers.

·         Any non-resident person who qualifies for VAT registration but does not have a fixed place of business in Kenya must appoint a resident person as his tax representative for VAT compliance purposes.

·         Should he not do this, the Commissioner has authority to appoint the tax representative for the non-resident person.

On application by a VAT registered person, the Commissioner may issue a private ruling on his interpretation of the VAT Act in relation to a proposed transaction, with this private ruling being binding on the Commissioner.