What is Value Added Tax (VAT)?
Value Added Tax (VAT) is a consumer tax charged on the supply and importation of taxable goods or services made in Kenya.
A trader will be required to apply on the iTax system for VAT obligation under only these two circumstances: -
- The trader expects to have or has an annual taxable turnover of Kshs. 5,000,000 and above
- Voluntary registration by a trader who makes or intends to make taxable supplies
Who should register for VAT?
KRA has restricted the addition of VAT obligation and set the following conditions and mandatory documentary requirements for approval of the same;
- Original CR12 for companies and Identity documents for directors or individuals including National Identity cards, passports or Alien Identity Cards;
- Business permit from relevant bodies;
- Work permits for aliens;
- Tax Compliance Certificates for all directors;
- Letter of appointment of Tax Representative for non-resident companies and identity documents of directors for companies with non-resident directors;
- Contact details including physical address, verified telephone contacts, email addresses, utility meter numbers and documents, office rent agreements;
- The website(s) or uniform resource locators (URLs) of the supplier through which business is conducted, where applicable;
- Contract agreements and/or sample invoices;
A Taxpayer who meets the above requirements can proceed to make an application for addition of VAT obligation.
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
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 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.
Electronic Tax Invoice
The VAT (Electronic Tax Invoice) Regulations, 2020 gazetted on 25th September 2020 (Legal Notice No 189) introduced the implementation of the electronic tax invoice in Kenya.
The electronic tax invoice refers to an invoice generated from a compliant Electronic Tax Register (ETR) that has the ability to check the correctness of the invoice data generated at the time of making a sale through a process called validation. In addition, the ETR will generate a unique QR code for each invoice that can be scanned to confirm the validity of the invoice. Once the invoice/receipt is generated and issued to the customer, the electronic version of the invoice, i.e. the electronic tax invoice will be transmitted to KRA over the internet on a real time or near real time basis.
Requirements for Electronic Tax Invoice
The requirements of the electronic tax invoice are applicable to all VAT registered taxpayers. KRA has published guidelines on how to comply. In order to comply, the VAT traders are required to adopt a compliant ETR to record their transactions from the approved ETR Suppliers.
Taxpayers have been provided a 12 month transition period within which to comply, i.e. from 1st August 2021 to 31st July 2022. Read more about the Electronic Tax Invoice.
Implementation of the VAT Special Table
What is VAT Special Table?
It is a mechanism implemented in iTax to enhance VAT compliance where certain categories of VAT registered taxpayers are restricted from performing certain processes. The following are categories so far on boarded on the special table:
Nil filers and Non-filers – This refers to Taxpayers who have either not filed returns or have consecutively filed NIL returns for a specified period. Missing Traders – This refers to taxpayers who are filing and paying VAT but on investigation were found to be involved in VAT fraud relating to ‘missing trader’ schemes
What are the benefits of the VAT Special Table?
The VAT special table bears the following benefits for traders:
- Identify erroneously added VAT obligations or VAT obligations that are no longer required.
- Reduces cases of abuse of traders PIN by fraudulent persons
- Assist traders to conduct business with compliant suppliers
What happens when a Taxpayer is on-boarded on the VAT Special Table?
- The taxpayer on-boarded on the VAT Special Table will be restricted from filling VAT returns. Upon attempting to file the return, the system will display the message: “This PIN is currently under review for VAT compliance irregularities. Please contact nearest KRA office.”
Note : Penalties will not be charged for non-filling of VAT returns as a result of on boarding of a taxpayer on the VAT special table.
- Traders cannot claim input tax from taxpayers’ on boarded on the special table. Upon upload of an original or amended VAT return that contains the PIN of a taxpayer who is in the special table, the entry will be rejected by the system and the following message displayed: “This PIN is not liable to input tax deduction”.
The affected taxpayers will be required to contact their Tax Service Office for guidance on removal from the VAT Special Table.
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