Waiver or variation of any tax can only be effected by legislation.
We note Parliament’s proposal to extend the transitional exemption on petroleum products by a further two years, though well intended, does not form legislation yet.
Such a proposal will only become law when the Finance Bill, 2018, as passed by Parliament, is assented to by the President or otherwise becomes law by the passing of time.
Suppliers of petroleum products may be forced to charge and collect VAT at 16 per cent on pump prices as they wait for the publication of the Finance Act, 2018. This is premised on the fact that imposition, waiver or variation of any tax can only be effected by legislation.
As such, by virtue of the operation of the law, the transitional exemption under the VAT Act, 2013, was to lapse on Friday and VAT will be due and payable on petroleum products at 16 per cent. The VAT Act, 2013, imposes VAT on goods or services imported or supplied in Kenya.
The default VAT rate is 16 per cent except in the case of zero rating and exemption. Exceptions are specifically listed under the Schedules to the Act. The exemption on petroleum products is provided for under the Part 1, Section B of the First Schedule to the VAT Act on a transitional basis, which was to lapse on August 31, 2018.
We note Parliament’s proposal to extend the transitional exemption on petroleum products by a further two years, though well intended, does not form legislation yet. Such a proposal will only become law when the Finance Bill, 2018, as passed by Parliament, is assented to by the President or otherwise becomes law by the passing of time.
We expect the Finance Act, 2018, to be published sometime this month or next month. Until then, VAT should be due and payable on all petroleum products at 16 per cent with effect from today. Further, the extension of the transitional exemption as proposed by MPs should ideally apply going forward after the enactment of the Finance Act, 2018. However, indications are that Parliament may seek to have the exemption applied retrospectively effective from today.
That said, whether or not the transitional exemption will be extended as proposed by Parliament remains uncertain. The President has the power to reject the MPs' proposal and refer the Finance Bill back to Parliament for reconsideration noting any reservations he may have on the Bill.
Pending publication of the Finance Act, 2018, the Kenya Revenue Authority, in exercising its statutory obligations of revenue collection will have the power to demand VAT on petroleum products.
The taxman may also seek to collect interest and penalties on any VAT not charged and collected on time. Where the VAT due is not charged and collected from the consumers, the suppliers of such petroleum products may be forced to fund such tax liability.
But what happens where the suppliers of petroleum products charge and collect VAT at 16 per cent from consumers and the transitional exemption is effected retrospectively?
We would expect the suppliers to apply for refund of the taxes paid from the government, but seeing that VAT is borne by the consumers, any amounts so refunded should be paid to consumers.
Of course, tracking and refunding such consumers may be an onerous task for the suppliers and this will only further complicate the situation.
Mr Kabochi is a Partner and Imelda Mutiso is a Manager with PWC Kenya’s Tax practice. firstname.lastname@example.org