Value Added Tax

What is VAT?

Value added tax is an indirect tax on the consumption of goods and services in the economy.

The government raises is revenue from such as per section 1(1) of the VAT act, by setting regulations that ensure that business register for VAT if the goods and services are supplied or Imported in Kenya and collected at different points in a supply chain.

VAT collection varies in many business and this is called a Tax benchmark

VAT benchmark (How it works)

Tax benchmark is therefore a means of establishing standards for evaluating the performance of tax administration.

There are different types of rates that is used on the sales tax rate also known as the VAT:

	Rate	Description
1	14% rate	This is the general rate on the local taxable supplies
2	8% rate	T his is the rate on local supply of fuel and petroleum products.
3	0% rate	Rate on the zero-rated supplies and the export. The government charges VAT but the rate is currently at zero The government doesn’t tax its retail sale but allows credit for the VAT paid on inputs. This means that at the time of paying tax on output , the producer can reduce the tax paid on the inputs thus paying the balance This therefore lowers the prices of goods therefore lowering tax burden on household. Examples of such are prescription goods, utilities and essential foods
4	Tax exemptions	The government doesn’t tax the sale of goods but the producers cannot claim credit for the VAT they pay on the inputs to produce it. This breaks the chain of credit on inputs purchase therefore raises price and revenue. This is mainly imposed on financial and insurances services

 

VAT registration

It is done by accepting the VAT obligation on the PIN form through the itax platform.

Registration is mandatory for any persons who has made taxable supplies (goods and services) or expects too much such whose value is 5 million within a year.

The registration is done30 days before he becomes a taxable personnel

Requirements of a registered persons

Issue all invoices though Electronic tax register (ETR)

Submit monthly returns and pay tax due on time

Charge VAT on all taxable supplies made

Display the registration certificate in a clearly visible place in the business premises including branches

Deregistration of VAT

This means that a person will no longer be registered and hence should not comply with the provisions of the VAT Act 2013.

This happens when a person doesn't:

• Make taxable supplies above 5 million within one year
• Expect to make taxable supplies within a year

One is required to continue filling returns until the deregistration is authorized

For additional information on value added tax:

1	http://kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/ValueAddedTaxActCap476.pdf\
2	https://www.kra.go.ke/images/publications/ValueAddedTax_ActNo35of2013.pdf

 

 

Make Inquiry