What is Value Added Tax (VAT)?
Value Added Tax is charged on supply of taxable goods or services made or provided in Kenya and on importation of taxable goods or services into Kenya.
Who should register for VAT?
Any person, individual, company or partnership that has supplied or expect to supply taxable goods worth Kshs. 5,000,000 and above within 12 months; you MUST register for VAT.
Registration is done online via iTax.
Once registered, you will be required to account for VAT charged on your taxable supplies through online monthly returns and pay any VAT due.
There are 3 typres of tax rates;
- 0% - for Zero rated supplies. Goods listed in the 2nd Schedule to the VAT Act e.g. Exportation of goods/services, goods supplied to EPZ, Priviledged persons and Public bodies etc.
- 8% - Petroleum oils obtained from bituminous, Motor Spirits (Diesel Supero, AViation spirit etc.)
- 16% - General rate for other Goods and Services
VAT operates on an INPUT – OUTPUT Principle.
A registered person should maintain a record of his sales and purchases for a tax period.
VAT on Purchases/Costs – Input Tax
VAT on Sales/Revenues – Output Tax
VAT Payable = Output Tax- Input Tax
If positive, tax due is payable on or before the 20th of the next month
- If positive-Input VAT – Input VAT = VAT Payable
This may also be a CREDIT, which is carried forward to the next month
When is VAT payable?
It is important to note that tax is due and payable (earlier of) when;
- Goods or services are supplied to the purchaser
- An invoice is issued in respect of the supply
- Payment is received for all or part of the supply
- A certificate is issued by an architect, surveyor or any person acting as consultant or in a supervisory capacity in respect of the service
How do I calculate VAT?
Transaction without VAT
- Buying Price= Ksh. 100
- Selling Price = Ksh. 200
Gross margin=Selling price minus buying price = 200-100= Kshs. 100
Transaction with VAT
Buying Price = Kshs. 100*116%= 116
Selling price = Ksh. 200* 116% =232
VAT payable = Output tax – Input Tax
=32-16= ksh. 16
Selling Price minus Buying price = 232 -116= Kshs. 116
Trader retains = ksh. 100
Remits = Ksh. 16 to KRA
How do I file for VAT?
VAT returns are submitted monthly via iTax on or before the 20th of the following month.
Persons with no VAT to declare are required to submit a NIL return.
How do I pay for VAT?
After filing the VAT return online via iTax, you are required to generate an E-slip which is used to physically pay the tax at the KRA appointed Banks.
You may however authorize your bank to pay the tax through a direct credit transfer to the Commissioners account at the Central Bank of Kenya.
What is the penalty for late filing and paying?
Date: On or before 20th of the following month.
Penalty on late filing: Whichever is higher between, Kshs. 10,000 and 5% of the tax due
Penalty on late payment: 5% of the tax due and a late payment interest of 1% per month on the unpaid tax until the tax is paid in full.
VAT on Imported Services
VAT on imported services may also be referred to as Reverse VAT.
Imported services are services provided by non-resident persons who are not required to register for VAT in Kenya. They may also be services provided by Export Processing Zones (EPZ's) for use or for consumption in Kenya.
Who should pay VAT on Imported Services?
Any importer of an imported service irrespective of his VAT registration status is liable to pay VAT on the imported service (Reverse VAT).
How do I pay for VAT on Imported Services?
The importer must register for a KRA PIN to be able to generate an e-slip (payment slip) via iTax and use it to pay the tax using the preferred mode of payment.
When is VAT on imported services due?
VAT on imported services is due and payable at the time when:
- The taxable service is received
- An invoice is received in respect of the service
- Payment is made for all or part of the service (whichever is earliest)
Tax paid on imported services for use in the registered person's taxable business may be deducted as input tax in subsequent VAT returns.
What is withholding VAT?
Withholding VAT is charged at a the rate of 2% of the value of taxable supplies with effect from 07/11/2019.
No VAT is withheld on exempt goods, exempt services and Zero rated supplies.
Any VAT withheld in exempt and Zero rated supplies is treated as tax paid in error and therefore refundable by the Commissioner.
How do I pay for Withholding VAT?
Withheld VAT is remitted by appointed withholding VAT Agents to the Commissioner on the 20th day of the month following deduction.
The payments are made online via iTax.
A taxpayer whose VAT has been withheld is still required to submit an online VAT return and account for the VAT balance