VAT MODULE 3 Imposition of VAT ©Dr. Wakaguyu wa-Kiburi (www.taxkenya.com) 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Scope Scope of VAT. Exempted supplies. Zero rate supplies. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Imposition of VAT Impose – forces, put in place/ demand attention or commitment . Imposition 1. Something imposed e.g. tax, levy; 2. Excessive or uncalled for requirements or burden; 3. Order of arrangement of imposed pages. Equivalent words Burden; Nuisance; Obligation …etc. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Imposition of VAT cont’ Therefore, imposition of VAT is to put a Burden or an Obligation. That burden or obligation is a VAT burden or VAT obligation. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Scope of VAT Scope – Extent of the area or subject matter that something deals with or to which it is relevant. Scope of VAT is the subject that VAT is relevant to or deals with. Scope - all supplies made in and into Kenya. Scope - in two (2) Schedules in the VAT Act and in the other unmentioned “schedule”. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Schedules 1. First Schedule – Exempt supplies Part 1: Goods Part 2: Services 2. Second Schedule – Zero rate supplies Part A - Zero Rated Supplies Part B - Zero Rated Supplies to Public bodies, Privileged persons and Institutions Part C - Medicaments 3. Other Schedule (nowhere) – vatable supplies 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

First Schedule - Exempt Supplies What are Exempt supplies? – Supplies that are not subject to VAT either at the Standard rate (16 %), Special rate (8%) or Zero rate (0%). The Schedule is divided into: Part I - Exempt Goods Section A: Local supplies (consumed locally). Section B: Exempt goods on transition. Part II – Exempt Services 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Exempt Supplies cont’ Why it is important to know exempt supplies: Suppliers of exempt goods are not required to register for VAT irrespective of turnover. Determines deductible input tax when a supplier has taxable and exempt supplies. For establishing input tax to remit to KRA on imported services. Exempt supplies do not retain status when exported …. Become zero-rate. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Exempt Supplies cont’ Exempt supplies retain status when imported. Results in the difference between VAT annual sales and income tax sales variances. No input tax is recoverable. Encourages tax evasion. ???? 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Exempt Supplies cont’ Implication of exempting supplies Increases prices - if supply has Vatable inputs. Decreases prices by 16 % or 8 %. Makes imports cheaper. Removes VAT obligation from many people e.g. farmers. ?? 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Exempt Supplies cont’ Broad categories of exempt supplies Raw products/materials. Food security - fertilizers and seeds. Development - power generation, roads. Health - insulin, blood, waste pharmaceuticals. Environment - biogas, biogas digesters. Industrial development-tourism, air transport 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Exempt Supplies cont’ Note: VAT exemptions can also be granted for taxable supplies such as machinery – at the National Treasury. VAT exemption is also done through Kenya Gazette Question: Should extra VAT exemptions be granted for taxable goods if not in the VAT Act? 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Part 1 - Exempt Goods Goods are: Tangible movable, Tangible immovable, Electrical or thermal energy, gas and water. Some are Exempt, Zero rate, Special rate and Standard rate. Note - in determining the tax status of a good, different inputs are treated as individual items …. for example mineral water - water, bottle 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Part 1 - Exempt Goods cont’ Section A – Local supplies Goods that are consumed locally. Either imported or produced locally. Initial list of items in the Act has changed. Most are raw products, for Food security, Development, Health, Environment, Develop of certain industries. Go through current list ….. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Part 1 - Exempt Goods cont’ Section B – Exempt Goods on Transition Covers application of VAT on goods on transit. Blanket exemption but produce documents at border points. Sometimes cargo escorted by Customs to border points. Transit to other countries e.g. Uganda, Eastern Congo, Tanzania etc. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Part II - Exempt Services Supply of the services is exempt from Standard tax rate of 16%, Special rate of 8% and 0%. Tax implication same as for goods. Services are in flowing categories… why? Financial services. Insurance and re-insurance. Education. Medical – human and veterinary services. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Part II - Exempt Services cont’ Agricultural – animal and horticultural. Death – burial and cremation. Passenger transport. Land and residential services. Community services. Brokerage services. Some Entertainments e.g. education. Accommodation and restaurant services etc. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Second Schedule: Zero Rating What is Zero rating? Zero ( 0 ) is a tax rate. This means that supplies are taxed at Zero %. Zero is not the same as NIL in taxation. Schedule is divided into: Part A – Zero rated supplies (local and imported). 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Second Schedule: Zero Rating cont’ Part B – Zero rated supplies to: Public bodies, Privileged persons and Institutions. Part C – Medicaments of listed HS Codes. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Second Schedule: Zero Rating cont’ Why Zero rate supplies? Reduce prices for local goods – no VAT, input claimable. For pro-poor policies. Make supplies competitive internationally. To enable suppliers claim input tax. Regional agreements... EAC, COMESA etc. Access to some products. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Second Schedule: Zero Rating cont’ Disadvantages of Zero rating supplies? ?? 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Part A – Zero rated supplies Has several items – go through the list. Put the items in broad categories. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Part B – Zero Rated Supplies to Public Bodies, Privileged Persons and Institutions Zero rated on: Local supplies On importation By: The persons or On behalf. How many persons are listed? 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Part B cont’: Zero rating of Supplies to Public Bodies Why? Advantage? Disadvantages? 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Part B cont’: Zero rating of Supplies to Privileged Persons Why? Advantage? Disadvantages? 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Part B cont’: Zero rating of Supplies to Institutions Why? Advantage? Disadvantages? 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Part C: Medicaments Medicaments for the listed HS Codes. For human and veterinary medicine. Go through the list 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Part C: Medicaments cont’ Why the specific medicaments? Advantage? Disadvantages? 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi

Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi Q & A 1. 2. 3. 4. 5. 10/13/2019 Prepared for www.taxkenya.com by Dr. Wakaguyu Wa Kiburi