Businesses with over 5 Million turnover tax in Kenya are supposed to register for VAT. The law makes it mandatory to file VAT returns 20th of every month after the end of the tax period, failure to which the firm will be slapped with penalties and fines. VAT payable to KRA results from the difference between the VAT a trader is charged during their purchases (input) and the VAT they charge during their sales (output). In the event that the input tax is more than the output tax, KRA will owe the businesses a tax credit which can be utilised in the subsequent months, or be claimed as a VAT refund.
Exports sales, transactions with zero-rated products or sale of a good to tax-exempt business operations like oil explorations are among the other factors the result to a tax credit. VAT is the largest contributor to KRA revenue basket. The advent of COVID-19 saw the government slash the VAT rate from 16% to 14% to cushion businesses from the impact of the virus. The taxman has been closing in on potential leads to tax revenue amid the pandemic, to try and meet his annual revenue collection target, which has been forecasted to fall short due to the deadly virus.
Aware that traders will be coming in with VAT claims, KRA has devised a cut down on the amount paid off to these claims. Previously, the liberty to prove the validity of the claims was with the traders, but KRA has shifted the burden to buyers /consumers. The buyer, supposedly, a firm that has registered for VAT, will now have to ensure that the supplier’s VAT return shows that the claimed goods or services were indeed charged the levy on the invoice.
If the supplier VAT return shows no such tax on the particular customer, then the supplier’s claim will be rendered invalid. This implies that a buyer will have to ensure that each supplier has declared sales on their VAT before they claim input tax on related invoices.
“If at the time when a deduction for input tax would otherwise be allowable … the person does not hold documentation … or a registered supplier has not declared the sales invoice in a return, the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation,” reads the Finance Bill, 2020.
However, tax experts disapprove of this proposal. According to Deloitte, the proposal will place a huge administrative burden for purchasers, especially for businesses like supermarkets which have large transactions.