How much do you know about VAT as a taxpayer?

Have you ever wondered why your receipts generated using Electronic Cash Register (ETR) like in the supermarkets include a 16 per cent VAT charge?

To begin with, it is important to note that Value Added Tax, or VAT, is tax charged on purchase of taxable goods and taxable services both local and imported.

How do we get registered or obligated to VAT requirements/obligations? We get registered for VAT obligation as stipulated by the law in two circumstances; mandatory and voluntary. 

Under the mandatory circumstance, an entrepreneur gets registered by the commissioner since he/she has failed to do so despite having an annual turnover of Sh5 million and above.

On the other hand, registration under the voluntary circumstance may apply even where the turnover is below the Sh5 million threshold.

During the registration, a taxpayer should state the precise place of business, telephone, email, and postal address.

The registration is done on itax platform by selecting the VAT obligation for new registrants.

However, for existing taxpayers; they are required to amend their details to include VAT as an obligation. 

It is also important to note that it is an offence to charge VAT before registration.

VAT return

It is a requirement to clearly display the certificate of KRA registration at the business premises all the time.

There are instances when you would want to change business details such as physical and postal addresses, name or trading name, directors, bank accounts, e.t.c. It is a requirement by law to notify the commissioner of such changes within 30 days.

Taxpayers ought to be aware that there are three main types of supplies and tax rates considered under the VAT obligation: 16 per cent, zero rated and exempt.

Most of the household items purchased at the supermarkets are taxable at 16per cent. Goods and services ordinarily taxable at 16 per cent of the domestic front, when exported would be taxable at 0 per cent.

The zero rated supplies, denoted as 0%, entail certain categories of supplies meant for trade promotion, exports, and raw material to pharmaceutical manufacturers for manufacturing medicaments.

Zero rating makes supplies cheaper as the rate of tax is zero while input tax is claimable, hence the entrepreneur is entitled to a refund.

Exempt supplies, on the other hand, are not taxable. Suppliers dealing wholly in exempt supplies are not entitled to input tax deduction.

A supplier of exempt supplies therefore does not need to register for VAT.

How VAT is therefore calculated?

VAT works under the input output tax system. Output tax refers to the VAT charged on the sales of taxable goods or services while input tax refers to VAT charged on taxable purchases for business purposes.

Tax payable is therefore the difference between the output tax and the Input tax

Alternatively, if a VAT registered taxpayer deals in both taxable and exempt supplies, he can only claim input tax in relation to taxable supplies.

Where the input tax attributable to exempt and taxable sales cannot be differentiated we apply partial exemption method to determine the input tax deductable.

A taxpayer is allowed to deduct input tax, which is directly attributable to taxable output. This deduction must be supported by valid tax invoices and done within six months.

Additionally, a VAT tax point (when tax is due and payable) is determined by various factors. When goods are delivered or services performed; when a certificate of completion is issued; date when an invoice is issued; when a payment is received whether partial or in full, or the date of meter reading, whichever comes first.

For imported goods, at the time of clearance by custom for home use.

VAT payments are made online by generating an e-slip on the iTax platform used for payment in bank.

Payments of one million shillings and above must be done through real time gross settlement (RTGS).  The RTGS forms are available on KRA’s website.

It should be noted that payments can also be made via mobile banking using various pay bill numbers.

Furthermore, VAT return for a particular month is submitted online on iTax on or before the 20th of the following month.

If the due date falls on a weekend or a public holiday, the returns and payment of tax due, if any, should be submitted before the last working day preceding the 20th day.

The returns can either be a payment return (if output is more than input tax), credit return (if input is more than output) or nil return (if the registered taxpayer has not had any transactions).

There are instances whereby VAT refunds may occur. The VAT Act provides for refunds for tax paid for various reasons such as; excess of input tax from zero rated supplies, tax paid in error or tax held for bad debts.

The claims should be lodged on iTAX within the stipulated time.

Deregistration option
A tax invoice is issued by a registered person and contains details of the sale transaction. The invoice should be serially numbered and generated from an Electronic Tax Register (ETR) or Electronic Signature Device (ESD)

The ETR/ESD should clearly show details such as date of the supply, name and PIN of the supplier, description of goods or services, their value, rate of tax and tax charged.

Consequently, a taxpayer should issue only one original tax invoice.

Finally, a taxpayer shall apply for deregistration for VAT if he/she ceases to trade in taxable goods/service.

However, one may elect to deregister if he/she falls below the threshold of Sh5 million.

Upon application for deregistration the taxpayer should continue submitting nil returns until advised otherwise.

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