The Treasury has proposed to impose the burden of proving the validity of a value added tax (VAT) claim on the buyer of a good or service, potentially making it more difficult to get a refund.
The buyer, who may be a firm that is presumed to be registered for VAT, is supposed to ensure the vendor has made a VAT tax return showing the invoice for the claimed goods or services were indeed charged the levy.
If the supplier or vendor's VAT return shows no such tax on the particular customer, then the latter's claim is considered invalid. Thus it falls on the customer to ensure the supplier's VAT return indicates they charged the levy.
The VAT is one of the largest sources of revenues for the State.
The Kenya Revenue Authority collected Sh413 billion in the year that ended June 2019 and expects to have collected Sh465 billion by the end of this fiscal year on June 30 – amounting to about a quarter of all tax collections for the year.
“If at the time when a deduction for input tax would otherwise be allowable … the person does not hold documentation … or a registered supplier has not declared the sales invoice in a return, the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation,” says the Finance Bill, 2020. Tax experts say the measure is unworkable.
“It's not practical because it presumes that a buyer can go to each supplier and ensure that they have remitted the VAT return showing that the particular purchase was charged VAT," said Nikhil Hira, a tax consultant with Bowmans Kenya.
Mr Hira said companies like supermarkets run many transactions.
"If passed, the proposal will place a huge administrative burden for purchasers to ensure all their vendors confirm that they have declared sales in their VAT returns before input tax on related invoices can be claimed. This will ultimately create a significant impediment for businesses," said Deloitte Consulting, a tax and financial advisory firm.