1. Application of VAT to the Construction Industry Chillanyang Cyprian
EAC HARMONISATION OF PROCEDURES

2. Table of content
Introduction
Background to the construction industry
Tax point for VAT
Preparation for Audit of construction firms
Areas for Potential Tax Evasion

3. Background / Construction Industry
Construction takes the nature of service provision.
Construction accounting considers long term contracts usually spanning beyond a 12 month period.
The accounting for construction is governed by IAS 11
A unique provision in the tax laws that addresses taxation of construction- the VAT regulation 6.

4. Tax point for VAT
In respect to each stage of work - when an invoice is issued or when payment is received or becomes due; whichever is the earliest.
Where certification is required – the invoice or claim shall be effective at the time of certification. (Within 30 days)

5. Prepare for audit of construction firm
Gather vital information
Arrange for an initial meeting
Discuss areas of discrepancy
Request for vital information
Generate tax position and hold a closing meeting
Issue a management letter and attach assessments

6. Areas for potential tax evasion
Registration / Declaration by sub contractors
Variations in the Contract (Additional works)
Fines and Penalties by the contractor
Currency Manipulation
Timing of the declaration

7. Areas for potential tax evasion (Cont’d)
Multi- National operators – related party transactions – VAT on imported services
Head office costs – what is the company policy on allocation;
Currency conversion Manipulations
Hire of capital equipment

8. Areas for potential tax evasion (Cont’d)
Employment of experts; where is the line?
Fraud in purchasing of building materials
VAT from suppliers of local inputs (e.g. sand aggregate etc)