Companies

Restaurant, bar owners find loophole to evade levies

restaurant

Restaurants or bars with over Sh3 million annual turnovers are required to register and pay a further two per cent catering levy. Photo/FREDRICK ONYANGO

Kenya Revenue Authority is losing billions of shillings as hoteliers evade paying levies, a new survey shows.

RSM Ashvir Consultants in a survey carried out in Nairobi revealed that over 50 per cent of hotels and bars within the central business district have not registered to pay value added tax (VAT) and catering levy and rarely make payments.

This loophole has arisen from the fact that hotel, bars and restaurants whose annual threshold turnover is less than Sh5 million are allowed to voluntarily apply for 16 per cent VAT registration while those above this bracket are required by law to register and install tax (ERT) machines.

Not paying

Restaurants or bars with over Sh3 million annual turnovers are required to register and pay a further two per cent catering levy.

However, the research by Pubs Entertainment and Restaurants Association of Kenya (Perak) says most companies are unregistered and hence are currently not paying both levies.

Restaurants and bar owners’ failure to pay taxes becomes the latest headache for the KRA, which is seeking to grow its revenue collections for next financial year to Sh641.2 billion.

Last month the tax collector said it had collected Sh444.5 billion in nine months of the 2010/11 fiscal year, representing a 16 per cent growth in the first three-quarters but sought to revise its target in this harsh economy characterised by rising inflation.

“Our research indicates that the level of non-compliance amongst bars alone in the CBD of Nairobi is 55 per cent on catering levy and 39 per cent on VAT,” read the report.

Corrupt officials

Based on results in the CBD where sale volumes are high, there is significant non-compliance which affects revenue streams for VAT and catering levy, the report read in part.

Registered hotels and restaurants are required to remit the net VAT due on or before 20th of each month and submit a monthly return form disclosing output and input tax.

The catering training and tourism development levy is imposed on the gross sales of accommodation, food, drinks and other amenities and is payable on or before the 10th of every month to the levy trustee.

Analysts say the blame lies on corrupt officials who turn a blind eye on outlets that have surpassed the income ceilings and deserve to be taxed once they receive bribes.