What is VAT Automated Audit (VAA)?
VAA is a system based solution that detects inconsistencies between purchase and sales invoices that have been declared in the VAT returns filed in iTax. The system communicates the inconsistencies to both the buyer and the seller and automatically disallows input taxes on invoices that remain unresolved after a given period of time.
This is part of KRA’s data driven compliance initiatives which seeks to optimize use of data to enhance efficiency in tax compliance and tax processes. The ratio of matching invoice declaration will in the long run form part of a risk profiling matrix that will determine the likelihood/frequency of a taxpayer’s audits, prompt processing of refunds, amongst others.
How does VAA work?
- The iTax system uses the buyer invoice declarations as a baseline against which it searches for each corresponding sale declaration based on the details provided by the buyer. To ensure compliance with the 6-month rule as outlined in Section 17 of the VAT Act, 2013, the system searches through a series of the sellers’ VAT returns before qualifying inconsistencies.
If any inconsistencies are noted between the buyer and sellers’ declarations, the system generates a detailed inconsistency report and sends a copy to both the buyer’s and the seller’s emails as provided in iTax.
In such event, the buyer and/or the seller are expected to amend the respective VAT returns to reflect the true position of the supply invoice (PIN, Invoice number, date and amount) in their VAT returns within a stated period.
Upon the lapse of the period, another report will be generated based on the amended returns. An email with a report of outstanding inconsistencies will then be sent to both the buyer and seller.
Any inconsistencies must thereafter be addressed within given timelines failure to which unresolved VAT inputs will be disallowed.
What gives rise to VAA Inconsistency?
An inconsistency is raised when either of the following invoice details between the seller’s and buyer’s returns do not match:
i. Invoice number
ii. Date of supply,
iii. Supplier/purchaser PIN,
iv. Transaction amount
There are 2 indicators of an inconsistency:
a. Under-declaration (denoted as ‘UD’ in the inconsistency report) – The seller has declared an amount lower than that declared by the corresponding buyer
b. Non-declaration (denoted as ‘ND’ in the inconsistency report) – The corresponding seller has not declared the sale in their VAT return
When the seller has not provided invoice details as prescribed in the VAT return but has captured sales made to VAT registered taxpayers as a lumped figure under the field ‘sales made to taxpayers not registered for VAT’, the system will register this as ND. This field, found in the last field of Sheet B in the VAT return is strictly used to capture sales made to the end consumer who is not registered for VAT. It should therefore not be used for sales made to VAT registered taxpayers who may end up claiming the amount as VAT input in their returns.
What is my role as a seller/supplier?
The seller bears the responsibility to declare each sale invoice in the VAT return in detail i.e. the PIN of purchaser/buyer, invoice number, amount and date. The seller should appreciate that all sales made to VAT registered taxpayers will need to be claimed in VAT returns of respective buyers. Therefore there is need for both parties to minimize unnecessary amendment of returns by reflecting accurate invoice details in the VAT returns.
What is my role as a buyer/purchaser?
It is the responsibility of every buyer to ensure that the correct invoice details are captured in the return i.e. the supplier PIN, invoice number, amount and date.
Note: If the purchase is being made from a Supermarket for purposes of resale the buyer is required to obtain a Tax invoice from the Customer Care desk. The invoice (and not the ETR receipt) will be used to claim related input taxes in the VAT return.
How do I interpret an inconsistency report?
An inconsistency report includes the following:
ND - Non-declaration where the transaction has not been declared by the seller but input tax has been claimed by the purchaser.
UD - Declaration of the transaction is lower than the amounts stated in the invoice by the buyer
What should I do when I get an inconsistency notice?
When you receive the inconsistency report, this could mean one of two concerns:
i. You may have declared wrong invoice detail(s) [PIN, invoice number, date/amount] and you will need to amend the return to reflect the correct invoice details
ii. The respective supplier/purchaser may have declared different details that may be incorrect and they therefore need to declare the correct details. They may also have left out the sale from their declaration.
If the details are considered to be correct as per the declaration, the taxpayer should consult the corresponding buyer/seller and advise them to amend the return OR reach out to any of KRA’s support channels [Contact Centre, nearest Tax Service Office, Support Centre or Huduma Centre] for guidance. Taxpayers are also encouraged to reach out to KRA for support in amending the returns if they face challenges.
What is the process of amending a return?
A user guide may be accessed on the KRA website: www.kra.go.ke
I am trying to amend my VAT return but I cannot proceed. Why?
VAA is based on system configurations that include, among others, embedment of the 6-month rule within which a taxpayer can claim an input tax (Section 17 of the VAT Act, 2013). In instances where an amendment affects any purchase invoice entries whose invoice date is older than 6 months and 20 days, the system considers such to be time barred and will not validate the return. Upon such amendment, taxpayers are advised to:
- Prepare and save a copy of the amended return and visit the nearest KRA Tax Service Office or Support Centre for assistance in uploading the same on iTax.
How much time do I have to amend a return?
The notification on VAA will indicate the period issued to effect a return amendment. The adopted model provides two interim periods of 15 days each before disallowing input tax on outstanding inconsistent invoice declarations. This is however a configurable parameter that is guided by administrative policies and extensions, if any will be communicated through multiple channels including public notices.
What happens if all inconsistencies are not cleared?
Following the lapse of two defined periods, the system will generate a report on outstanding inconsistencies and disallow related input taxes. If any tax arises, as a result, the taxpayer should pay the tax.
Where can I seek support on VAA? •
The nearest KRA Tax Service Office or Service Centres
• The nearest KRA Tax Service Office or Service Centres
• Huduma Centres.
• KRA Contact Centre through Tel: 0204999999,0204998000, Cell:0711-099999
• Email: email@example.com