2011 VAT, CUSTOMS & EXCISE PROPOSALS MARTIN KISUU TAX PARTNER PKF KENYA

VAT BILL What to expect The Minister made no changes in the current VAT Law. VAT BILL 2011 (proposed in 2010 Budget) to be released shortly Public comments to be collected and collated by end August Thereafter, a revised Bill to be table before parliament for enactment

Key Concerns VAT refunds burden too many claimants, possibly the result of too much zero-rating and the usual refund frauds Narrow base, low revenue take too many items exempted from VAT; regime not broad-based: equitable and fair?

Is revenue take low?

Key Concerns Not Modern since 1990, business has moved on, the law has been intact: e-commerce, cross-border transactions, technology Complex legislation, low compliance Tax clothing except for children (which size bra is the cutoff between a girl and a woman?) Where is your Panadol from?

Unnecessary complications Para 12, Sch 1 (Z-rated Supplies), TZ VAT Act The supply by local manufacturers of: - Human medicines, drugs and equipment, which have been approved by the Minister responsible for Health upon the recommendation of the Tanzania Food and Drugs Authority. Para 3(2), Sch 2 (Exempt Supplies), TZ VAT Act The supply of human medicine, drugs and equipment which have been approved by the Minister responsible for Health upon recommendation of the Pharmacy Board.

The best way to raise VAT: Look to New Zealand Almost everything is taxed; fewer exception: Residential accommodation, charitable donations, some financial transactions Zero rating for exports only – very few exceptions …. Simple and pure like New Zealand wool

The best way to raise VAT: Look to New Zealand A low rate of 12.5% (up to October 2010) has enabled GST to contribute over 27% of total revenue and a significant reduction in taxes on income.

Kenya Implications for adopting for NZ Model Most zero-rated goods/services to be standard rated or exempt (input taxed): Some exempt goods/services to be standard rated Privileged persons/bodies: some may lose status – the rest pay and claim refunds Few refund cases, certification may not be necessary Will good VAT yields lead to lower VAT rate/personal tax?

Customs-CET New RateOld rate Duty on asceptic plastic bags used for storage of fruit extracts10%25% Premixes for animal and poultry feeds0%10% Battery operated vehicles0%25% Apron buses used at airports0%25% Vehicles and equipment imported by the Kenya Police0%25% Security equipment e.g. hand held metal detectors, CCTV cameras, bomb detectors, under carriage walk through metal detectors, under carriage mirrors 0%25% Rice-for one year35%75% Wheat grain for gazetted millers-For one year0%10% Maize grain by gazetted maize mill0%50% Motor Cycle ambulances0%25% Food supplements10%25%

Excise-Alcoholic beverages Old rateNew Rate Stout and porterShs. 65/litre70/litre or 40% of RSP Other beer made from maltShs. 65/litreShs. 70/litre or 40% of RSP ciderShs. 55/litreShs. 70/litre or 40% of RS Opaque beerShs. 55/litreShs. 70/litre or 40% of RS Fermented beveragesShs. 55/litreShs. 70/litre or 40% of RS Pre-mixed alcoholic beverages of alcoholic strength ≤ 10% Shs.120/litre or 35% Shs. 80/litre or 40% of RSP WineShs. 70/litre or 35% Shs. 80/litre or 40% of RSP

Excise-Cigarettes & Petroleum products Removial of the previous four tier structure and replacing it with : Kshs 1200 per mille or 35% of RSP, whichever is higher Excise duty on kerosene abolished. Excise duty on diesel recently reduced by 20% to be retained.