VAT Bill disappoints taxpayers

In Kenya, the long-awaited VAT Bill is finally here with us. Overall, we must ask whether it is simpler, more modern and broad-based—or simply business as usual, with the usual twists. Unfortunately for Kenya’s taxpayers, the reality is closer to the latter.

Investors had hoped that the VAT Bill would grant remission to businesses that import and locally purchase capital equipment or who are in the hotel construction or oil exploration sectors but the Bill instead scraps VAT remission altogether. This is a big blow to investors seeking opportunities in Kenya.

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.

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 KRA.

Sadly, there are no such provisions in the Bill 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 makes various assertions about broadening the tax net to more accurately include imported services but we foresee considerable enforcement difficulties.

The VAT Bill also proposes to broaden the tax net by targeting e-commerce undertaken by non-residents and it makes a similarly hazy attempt to clarify the taxation of exported services.

Changes like these indicate that the VAT Bill does not achieve the simplicity and clarity that taxpayers had hoped for.

The following details some of the significant changes which have been proposed in the VAT Bill regarding goods and services that are currently exempt or zero-rated; Exempt goods which will become taxable at 16 per cent - cut flowers, wood charcoal, helicopters, aircraft.

Exempt services which will become taxable at 16 per cent -Postal services, management of unit trusts or collective investments, entertainment performed by Kenyan artists, Hiring, leasing and chartering of aircraft and helicopters including air ambulance aircraft, tour operation and travel agency services.

Zero-rated goods which will become taxable at 16 per cent -Milk and cream (except unprocessed milk), maize and wheat flour, ordinary bread, gluten bread and unleavened bread, Infant formula, computer software, sanitary towels and tampons, medical dressings and plasters, writing or drawing chalk, newspapers, journals and periodicals, exercise books and printed books, Cinematographic cameras and projectors.

Zero-rated services which will become taxable at 16 per cent - electrical energy to domestic households, services in respect of goods in transit, landing and parking services provided for aircraft, water drilling services, services to film producers.