What the VAT Bill means in its form
Posted Monday, July 30 2012 at 19:00
The VAT Bill contains positive changes compared with the VAT Act.
However, before it can be termed a step in the right direction, a number of amendments need to be made, particularly on having remissions for targeted sectors, having a transitional period of four to five years on products and services moving from zero and exempt status to standard rate, introducing interest on refunds and having better provisions on dealing with e-commerce.
If this is done, the revised Bill will certainly be simpler, modern and broad-based — a step in the right direction.
Investors had hoped that the VAT Bill would grant VAT remission to stimulate investment, for example, in infrastructure, mining and hospitality sectors. But it instead scraps remission altogether.
This is a big blow to investors seeking opportunities in Kenya. In an attempt to collect more tax revenues from consumption, a significant number of goods and services which were previously either zero-rated or exempt, will now be subject to 16 per cent VAT. This will significantly increase the cost of living and be disruptive to a number of businesses, for example, airlines and tour operators.
Another significant change is to eliminate the 12 per cent VAT rate altogether in favour of two rates only: 0 per cent for zero-rated supplies and 16 per cent for any other supply.
Kenyans will notice the impact of this change on their electricity bills. Power was previously charged at 12 per cent but the rate will now rise to 16 per cent. A transitional period of four to five years is required on products and services moving from zero and exempt status to standard rate.
It was also hoped that the VAT Bill would require the tax commissioner to pay interest on any delayed VAT refund, to provide some redress for the huge backlog of refunds at the Kenya Revenue Authority. Sadly, there are no such provisions and the backlog will continue to frustrate taxpayers. Other changes include reducing the time limit for deducting input VAT from 12 months to three, requiring even greater levels of business efficiency.
Positive developments include clarifying the rules regarding place of supply of goods which occur in Kenya and introducing a 60-day time limit for the commissioner to respond to taxpayer concerns, which should help to expedite the process of tax dispute resolution.
The VAT Bill also requires KRA to publish public rulings in at least two daily nationwide newspapers and reduces the list of privileged persons, bodies and special goods entitled to zero rating.
Zero-rated goods which will become taxable at 16 per cent rate, include milk and cream (except unprocessed milk), maize and wheat flour, bread, infant formula, mosquito nets, computer software, sanitary towels and tampons, medical dressings and plasters, writing or drawing chalk, newspapers, journals and periodicals, exercise books and printed books and cinematographic cameras and projectors.
Zero-rated services which will become taxable at 16 per cent include electrical energy less than 200 KWH to domestic households, water drilling services, and services to film producers. Zero-rated goods which will become exempt include kerosene and jet fuel.
Mr Shah is a PwC Kenya tax partner email@example.com