All you need to know about the Value Added Tax (VAT) in Kenya

Updated on June 27, 2022

Sales tax on goods manufactured in Kenya and exported to Kenya are referred to as Value Added Tax (VAT).

The laws of 2013 and 2017 are in charge when it comes to charging VAT.

In order for a company to register for VAT, its taxable turnover must be larger than $5 million per year. If your taxable supply is less than $5 million, you can self-register.

Various goods’ costs;

Taxes are levied on more than a third of all municipal sales.

Only 8% of the total is derived from domestic sources.

Both supply and export are given the same percentage of the total.

Rates are not applied to supply that is exempt.

VAT-registered providers who have completed a transaction must file their tax returns by the 20th of the following month. Regardless of whether or not a purchase was made, a refund must be submitted by a designated individual.

Time of supply

in a tax period, accounting for VAT shall be done at the earliest point possible.

The date on which the goods are delivered; the date on which the bill is issued;
Certification for construction services issued on this date;
The day on which the supplier receives payment for their goods.

VAT on imported services

Imported services are likewise subject to VAT. Reverse VAT is a term for this type of tax.

Kenya does not require non-resident persons to register for VAT on imported services. In other words, they might be export processing zone (EPZ) services for Kenyan customers.

The importer bears the tax burden of reverse VAT.

Registered persons may deduct input tax on taxable supplies or imports from their taxed income to an extent that the supply was purchased for taxable purposes.

The period allowed to deduct input tax

Six months after the date of supply or importation, input VAT deduction is permitted. In order to deduct input tax on a taxable supply, a tax payer must have the necessary evidence to justify the input deduction.

 Supplies prohibited from input tax deduction

Excluded from VAT under Section 17(4) are expenses for the acquisition and repair of personal vehicles as well as for entertainment and dining out.

Input tax deduction and apportionment of input VAT

This means that if input VAT is higher than output VAT, the difference will be carried over until it is used up, with no limit.

A VAT refund may be available if an overpayment of input VAT is incurred as a result of a zero-rated supply.

Taxable and nontaxable components of a supply must be separated out using the formulas below.

The following is the formula for allocating resources:

(A/A+B) = 100 percent of C

Where;

Amounts that can be recouped through sales

B: Sales that are not subject to taxes.

C= The percentage of VAT input that can be linked to real sales.

The following are the ground rules:

If C is larger than 90%, then VAT will be deducted from the amount.
Case C has a less than 10% chance of occurring. Input VAT will not be deducted.
VAT input that falls between 10 percent and 90 percent will be deducted in scenario C only.

Finance Act 2020- VAT

Input tax deductions now have an extra criterion as part of the Finance Act, 2020. The registered supplier must have disclosed the output tax in their VAT return if they want to claim input tax, and the individual making the claim must have the paperwork needed by Section 17 (3).

Tax Laws Amendment Act 2020-VAT on petroleum products

Including any taxes, tariffs, levies, fees, and charges paid or due as a result of the supply, the taxable value is the total amount received in exchange for the delivery. It’s important to note that Section B of the First Schedule to the VAT Act has been changed in the Tax Laws Amendment Act, 2020 (TLAA). Excise taxes, fees, and other levies were not included in the taxable value of these petroleum products at first. As of May 15, 2020, the taxable value of petroleum products shall be the consideration for the supply and include any taxes, duties and levies, fees, and charges paid on or due to the supply of the petroleum products.

The time limit for VAT refund application

Taxpayers now have four years instead of five to get a return of VAT paid on bad debts. Taxpayers had a five-year window in which to request a return of VAT paid on bad debts that were more than three years old. As a result of the new legislation, firms will have to move quickly if they wish to appeal to the tax authority for a refund of VAT paid on bad debts.

Value Added Tax on Digital Market Place Supplies

Because of the Finance Act, 2020, VAT is now applied to digital marketplace supplies. Digital marketplace purchases in Kenya will be taxed at the standard VAT rate.

Value Added Tax (Distance Selling) Regulations (2020) were issued on September 25, 2020, to define how DST will work and the mechanics around it, per Legal Notice No. 190 of 2020.

People who do not have a physical location in the United States and provide digital services will be taxed.

Magazine and journal subscriptions; digital downloads; e-books; mobile apps; subscription-based media
Over-the-top services and all types of digital content, such as TV shows, movies, podcasts, and more.
Everything from software drivers to firewalls and website filtering falls under the umbrella term “software.”
There are several examples of electronic data management, including website hosting, online data storage, file-sharing, and cloud storage.
listening to and playing music; a customizable search engine; and an automated helpdesk service are all included.
Various live entertainment venues such as restaurants and theaters
Online courses and training that are prerecorded material, such as online courses and tutorials; Content that may be listened to, viewed, or played on any digital or audiovisual device.
Transport-hailing services or platforms, Section 8 (3) electronic services, and otherwise non-exempt services provided through a digital marketplace are examples of provider-to-recipient services.

The need for Electronic Tax Receipt- ETR

An ETR must be purchased and maintained to record sales once you have been registered for VAT. Buying from a KRA-approved seller ensures that you are getting genuine goods. All sales, regardless of whether they are vatable, zero-rated, or exempt, must be recorded. This makes it possible to compare sales data with the tax returns that have been submitted to KRA.

Conclusion

The VAT return must be submitted by that of the 20th of another month, even if no business is conducted. A fine or Ksh 10,000 is imposed for each period of disobedience.