1. VAT MODULE 3 Imposition of VAT
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Scope
Scope of VAT.
Exempted supplies.
Zero rate supplies.
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Imposition of VAT
Impose – forces, put in place/ demand attention or commitment .
Imposition
1. Something imposed e.g. tax, levy;
2. Excessive or uncalled for requirements or burden;
3. Order of arrangement of imposed pages.
Equivalent words
Burden;
Nuisance;
Obligation …etc.
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4. Imposition of VAT cont’
Therefore, imposition of VAT is to put a Burden or an Obligation.
That burden or obligation is a VAT burden or VAT obligation.
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Scope of VAT
Scope – Extent of the area or subject matter that something deals with or to which it is relevant.
Scope of VAT is the subject that VAT is relevant to or deals with.
Scope - all supplies made in and into Kenya.
Scope - in two (2) Schedules in the VAT Act and in the other unmentioned “schedule”.
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Schedules
1. First Schedule – Exempt supplies
Part 1: Goods
Part 2: Services
2. Second Schedule – Zero rate supplies
Part A - Zero Rated Supplies
Part B - Zero Rated Supplies to Public bodies, Privileged persons and Institutions
Part C - Medicaments
3. Other Schedule (nowhere) – vatable supplies
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7. First Schedule - Exempt Supplies
What are Exempt supplies? – Supplies that are not subject to VAT either at the Standard rate (16 %), Special rate (8%) or Zero rate (0%).
The Schedule is divided into:
Part I - Exempt Goods
Section A: Local supplies (consumed locally).
Section B: Exempt goods on transition.
Part II – Exempt Services
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Exempt Supplies cont’
Why it is important to know exempt supplies:
Suppliers of exempt goods are not required to register for VAT irrespective of turnover.
Determines deductible input tax when a supplier has taxable and exempt supplies.
For establishing input tax to remit to KRA on imported services.
Exempt supplies do not retain status when exported …. Become zero-rate.
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Exempt Supplies cont’
Exempt supplies retain status when imported.
Results in the difference between VAT annual sales and income tax sales variances.
No input tax is recoverable.
Encourages tax evasion.
????
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Exempt Supplies cont’
Implication of exempting supplies
Increases prices - if supply has Vatable inputs.
Decreases prices by 16 % or 8 %.
Makes imports cheaper.
Removes VAT obligation from many people e.g. farmers. ??
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Exempt Supplies cont’
Broad categories of exempt supplies
Raw products/materials.
Food security - fertilizers and seeds.
Development - power generation, roads.
Health - insulin, blood, waste pharmaceuticals.
Environment - biogas, biogas digesters.
Industrial development-tourism, air transport
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Exempt Supplies cont’
Note:
VAT exemptions can also be granted for taxable supplies such as machinery – at the National Treasury.
VAT exemption is also done through Kenya Gazette
Question: Should extra VAT exemptions be granted for taxable goods if not in the VAT Act?
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Part 1 - Exempt Goods
Goods are:
Tangible movable,
Tangible immovable,
Electrical or thermal energy, gas and water.
Some are Exempt, Zero rate, Special rate and Standard rate.
Note - in determining the tax status of a good, different inputs are treated as individual items …. for example mineral water - water, bottle
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14. Part 1 - Exempt Goods cont’
Section A – Local supplies
Goods that are consumed locally.
Either imported or produced locally.
Initial list of items in the Act has changed.
Most are raw products, for Food security, Development, Health, Environment, Develop of certain industries.
Go through current list …..
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15. Part 1 - Exempt Goods cont’
Section B – Exempt Goods on Transition
Covers application of VAT on goods on transit.
Blanket exemption but produce documents at border points.
Sometimes cargo escorted by Customs to border points.
Transit to other countries e.g. Uganda, Eastern Congo, Tanzania etc.
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16. Part II - Exempt Services
Supply of the services is exempt from Standard tax rate of 16%, Special rate of 8% and 0%.
Tax implication same as for goods.
Services are in flowing categories… why?
Financial services.
Insurance and re-insurance.
Education.
Medical – human and veterinary services.
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17. Part II - Exempt Services cont’
Agricultural – animal and horticultural.
Death – burial and cremation.
Passenger transport.
Land and residential services.
Community services.
Brokerage services.
Some Entertainments e.g. education.
Accommodation and restaurant services etc.
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18. Second Schedule: Zero Rating
What is Zero rating?
Zero ( 0 ) is a tax rate.
This means that supplies are taxed at Zero %.
Zero is not the same as NIL in taxation.
Schedule is divided into:
Part A – Zero rated supplies (local and imported).
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19. Second Schedule: Zero Rating cont’
Part B – Zero rated supplies to:
Public bodies,
Privileged persons and
Institutions.
Part C – Medicaments of listed HS Codes.
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20. Second Schedule: Zero Rating cont’
Why Zero rate supplies?
Reduce prices for local goods – no VAT, input claimable.
For pro-poor policies.
Make supplies competitive internationally.
To enable suppliers claim input tax.
Regional agreements... EAC, COMESA etc.
Access to some products.
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21. Second Schedule: Zero Rating cont’
Disadvantages of Zero rating supplies? ??
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22. Part A – Zero rated supplies
Has several items – go through the list.
Put the items in broad categories.
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Part B – Zero Rated Supplies to Public Bodies, Privileged Persons and Institutions
Zero rated on:
Local supplies
On importation
By:
The persons or
On behalf.
How many persons are listed?
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24. Part B cont’: Zero rating of Supplies to Public Bodies
Why?
Advantage?
Disadvantages?
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25. Part B cont’: Zero rating of Supplies to Privileged Persons
Why?
Advantage?
Disadvantages?
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26. Part B cont’: Zero rating of Supplies to Institutions
Why?
Advantage?
Disadvantages?
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Part C: Medicaments
Medicaments for the listed HS Codes.
For human and veterinary medicine.
Go through the list
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28. Part C: Medicaments cont’
Why the specific medicaments?
Advantage?
Disadvantages?
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Q & A
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