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Kenya

VAT compliance

Returns and payment of VAT

VAT returns (Form VAT3) are filed on a monthly basis. The return must be submitted and payment of VAT made within 20 days of the end of every tax period (the tax period is equal to one calendar month), except where the 20th day falls on a Saturday, Sunday or bank holiday, in which case the return is due on the preceding working day. Currently, manual returns have to be filed with the KRA. However, the KRA is encouraging taxpayers to file on-line VAT3 returns.

Payment of any VAT due must be made at the time of filing of VAT returns. Payment can be made in cash, by way of a cheque or a bank transfer.

In terms of the withholding VAT system, appointed withholding VAT agents are required to withhold and remit the VAT charged to them directly to the KRA. When supplies are made to a withholding VAT agent, the agent will pay the supplier net of the VAT, remit the VAT due to the KRA directly, and provide the supplier with a withholding VAT certificate equal to the amount withheld at the time of making payment for the supplies and not at a later date, which has been the practice by some withholding VAT agents.

Interest and penalties

In the case of the late filing or non-filing of a VAT return, a flat rate penalty of KShs10,000 per month or 5% of tax due, whichever is higher, plus interest payable on the outstanding balance at a rate of 2% per month compounded is payable.

Late payment of VAT will result in interest on the outstanding tax balance at a rate of 2% per month compounded. In these cases, the flat rate penalty is waived and only the interest is charged.

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Refunds

VAT credits are usually carried forward to offset future VAT liabilities. However, a tax refund can be obtained upon application in a prescribed form (on Form VAT4), in the following cases:

  • where a taxpayer is in a credit position and the credit is attributed to either:

    • the making of zero-rated

supplies;

  • tax withheld by appointed withholding tax agents;

  • where tax has been paid in error; or

  • where tax has been paid on

uncollected debts.

Other than where credits result from VAT withholding, the refund claim must be accompanied by an auditor’s certificate where the amount of the refund claimed is in excess of KShs1 million. The claim for a tax refund, other than a claim for a refund based on the Commissioner’s discretion for supplies relating to public interest, must be made within 12 months from the time the tax becomes payable.

VAT-registered businesses can utilise an approved VAT refund for set-off against any other current or future tax liability. However, refunds cannot be used to set off taxes arising upon importation of either goods or services.

Objections and appeals

A person who disputes an assessment made upon him for failure to pay any of the VAT that has become payable by him may object to the assessment by notice to the Commissioner. The notice must expressly state the grounds of objection to the assessment and be received by the Commissioner within 30 days after the date of service of the notice of assessment.

The Commissioner may amend the assessment or refuse to amend the assessment. Where a person disputes the decision of the Commissioner on any matter subsequent to an objection he may, upon giving notice in writing to the Commissioner within 30 days of being notified of the decision, appeal to the tribunal, provided that:

  • the person pays assessed tax not in dispute or such part thereof as the Commissioner may require;

  • in case of any other dispute, the person, before filing the appeal, must submit all tax returns where applicable, as required, and pay the tax amount shown thereon as being due and payable.

A party to an appeal who is dissatisfied with the decision of the tribunal on the appeal may appeal to the High Court within 14 days of being notified of the decision, provided that before filing the return such person shall deposit with the Commissioner the full amount of tax disputed.

Time limits

Input tax may be deducted at the end of either the tax period in which the supply or importation occurred or the next following tax period, provided that not more than 12 months have elapsed since that input tax became due and payable.

In the case of a motor vehicle or other asset purchased under a hire purchase or a finance lease agreement, input tax may not be deducted more than 12 months after the issuance of a letter of undertaking or a clearance certificate.

VAT records

Tax invoices

A tax invoice must be issued by any registered person who makes a taxable supply immediately when the supply is made. The tax invoice to be issued

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