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SeminarVAT Act 2013
Tax
September 2013
Strictly Privateand Confidential
Agenda
1 Introduction 1
2 Changes in interpretation 10
3 Rates of Tax 13
4 Time and Place of supply 15
5 Imported services received by registered persons 21
6 Taxable value 24
7 Export of services 28
8 Deduction of input tax 31
9 Partial exemption 34
10 Revised time limits 38
11 Refund of tax 40
12 VAT Remission 42
13 Registration and Deregistration 44
14 Application of Information Technology 47
Page
Agenda
15 Objections 50
16 Appeals 52
17 Tax avoidance schemes 54
18 Enforcement 56
19 Public/private rulings 58
20 Transitional clauses 61
21 Change of VAT status 63
22 What does the VAT Act 2013 mean to me in theFinancial Services Sector?
72
23 Questions & answers 85
Page
PwCSeptember 2013
Introduction
1
Seminar • VAT Act 2013
PwCSeptember 2013
• Focused onmanufacturing andimportation of goodsonly
• Tax collected at onestage only
Objective – expand thetax base and increaseGovernment revenue butexpectations not fullymet
• Tax at every stage of thesupply chain
Numerous amendmentscreated complexitiesand uncertainties inthe VAT Act
Objectives:
• Simplification
• Broadening the Tax Base
• Best Practice
Step in the rightdirection, but needs
fine-tuning
Evolvement of Value Added Tax (VAT) in Kenya
2Seminar • VAT Act 2013
Section 1 – Introduction
Sales tax VAT Act, 1990 VAT Act, 2013
PwCSeptember 2013
June 2010
Announcement
August 2011
Draft VAT Billpublished
January 2012
Public Forum
June 2012
VAT Bill, 2012published
June 2013
VAT Bill, 2013published
16 August 2013
VAT Act, 2013published
2 September2013
Commencementdate
The journey
3Seminar • VAT Act 2013
Section 1 – Introduction
PwCSeptember 2013
• Import/Export of services ;
• Simplified administrativeprocedures e.g. on transfer of abusiness as a going concern
Positive aspects
4Seminar • VAT Act 2013
Section 1 – Introduction
PwCSeptember 2013
• VAT status change on basiccommodities
• Abolition of VAT remission
Disappointments
5Seminar • VAT Act 2013
Section 1 – Introduction
PwCSeptember 2013
• Expansion of scope of business
• Persons covered
• Change in status of taxable supplies – shift to from zero/exempt to standard
Broadening the tax base
6Seminar • VAT Act 2013
Section 1 – Introduction
PwCSeptember 2013
Per the Repealed Act
Trade, commerce or manufacture or any concern in the nature of trade,commerce and manufacture;
VAT ACT,2013
a) Trade, commerce, manufacture, vocation or occupation;
b) Any activity carried on by a person continuously or regularly, whether or notfor gain or profit and which involves, in part or in whole the supply ofgoods or services for consideration; and
c) A supply of property by way of lease, licence, or similar arrangement.
Business
7Seminar • VAT Act 2013
Section 1 – Introduction
PwCSeptember 2013
An individual, company, partnership, association of persons, trust, estate, thegovernment, a foreign government, or a political subdivision of the governmentor foreign government
Company…
Company means a company as defined in the Companies Act or a corporatebody formed under any other written law including a foreign law.
Person …Now defined
8Seminar • VAT Act 2013
Section 1 – Introduction
PwCSeptember 2013
• Any person who supplies taxable goods or services for consideration will berequired to register for VAT ( subject to threshold)
The implications re business and persons
9Seminar • VAT Act 2013
Section 1 – Introduction
PwCSeptember 2013
Changes in interpretation
10
Seminar • VAT Act 2013
PwCSeptember 2013
11Seminar • VAT Act 2013
Section 2 – Changes in interpretation
Repealed VAT Act VAT Act 2013
Goods Taxable goods-Electricity and any othergoods other than thosespecified in the 2nd
schedule
Goods - Tangible movable andimmovable property and includeselectrical or thermal energy, gas andwater but does not include money.
Importation Bringing or cause to be brought intoKenya from a foreign country or froman export processing zone.
PwCSeptember 2013
Repealed VAT Act VAT Act 2013
Importer A person who importstaxable goods
The person who owns the goods or anyother person who is for the time beingin possession of or beneficiallyinterested in the goods at the time ofimportation.
Supply • Supply or delivery oftaxable goods toanother person;
• sale or provision oftaxable services toanother person;
• making of a gift of anytaxable goods orservices ; or
• any other disposal oftaxable goods orprovision of taxableservices.
The definition categorises in to:
• Supply of goods;• Supply of services ; and• Supply of imported services.
12Seminar • VAT Act 2013
Section 2 – Changes in interpretation
PwCSeptember 2013
Rates of Tax
13
Seminar • VAT Act 2013
PwCSeptember 2013
• Two rates for VAT:
0% for zero rated supplies; and
16% for any other supply.
• 12% rate scrapped thereforeelectrical energy and industrial oilsnow taxable at 16%.
Rates of tax
14Seminar • VAT Act 2013
Section 3 – Rates of Tax
PwCSeptember 2013
Time and Place of supply
15
Seminar • VAT Act 2013
PwCSeptember 2013
The earlier of the date:
• on which goods are delivered or services performed;
• a certificate is issued by an architect, surveyor, or consultant;
• on which the invoice is issued; or
• on which payment for is received, in whole or part.
Time of supply of local supplies and imported services
16Seminar • VAT Act 2013
Section 4 – Time and Place of supply
PwCSeptember 2013
17Seminar • VAT Act 2013
Section 4 – Time and Place of supply
• Time of supply of imported goods shall be:
• Time of customs clearance for goods cleared for homeuse at the port of importation or at an inland station;
• At the time of final clearance from a warehouse forhome use;
• At time of removal of goods from an export processingzone for home use; and
• At the time goods are brought into Kenya, in any othercase.
Time of supply of imported goods
PwCSeptember 2013
18Seminar • VAT Act 2013
Section 4 – Time and Place of supply
Local Services
• A supply of services is made inKenya if the place of business ofthe supplier from which the servicesare supplied is in Kenya.
Local Goods
Supply of goods occurs in Kenya if:
• they are delivered or made availablein Kenya by the suppliers;
• their supply involves theirinstallation or assembly at a place inKenya; or
• goods are delivered outside Kenyaand these were in Kenya whentransportation commenced.
Place of supply of local services and goods
PwCSeptember 2013
Section 4 – Time and Place of supply
19Seminar • VAT Act 2013
These will be deemed to be made in Kenya if they are:
Physically performed in Kenya;
Directly related to immovable property in Kenya;
Radio or broadcasting services received at an address in Kenya;
Transfer or assignment of, or grant of a right to use, a copyright,trademark, patents etc; or
Electronic services delivered to a person in Kenya at the timeof supply.
The non-resident supplier is required to appoint a taxrepresentative to meet his obligations
Place of supply of services provided by a non - residentsupplier if the recipient is not a registered person
PwCSeptember 2013
Section 4 – Time and Place of supply
20Seminar • VAT Act 2013
• Tax representatives:
- to be registered in the nameof non-resident person beingrepresented.
-will have the responsibilityfor doing all things requiredby the non-resident.
Commissioner may appointupon failure of the non-resident to do so;
Tax Representatives
PwCSeptember 2013
Imported services received byregistered persons
21
Seminar • VAT Act 2013
PwCSeptember 2013
Section 5 – Imported services received by registered persons
22Seminar • VAT Act 2013
Accounting for VAT
This will be accounted for as follows:
1. Fully taxable persons
Will get credit for full input tax payableby having the taxable value of theimported services reduced to zero andwill be accounted for as output in theVAT 3 return.
2. Mixed supplies persons
Registered persons will get credit forthe part of input tax that relates totaxable supplies.
VAT on imported services received by registered persons
A registeredperson will
be deemed tohave made a
taxablesupply tohimself.
PwCSeptember 2013
Section 5 – Imported services received by registered persons
Fully taxableperson
100
(100%)
Nil
PartiallyTaxableperson
100
(80%)
20
ImportValue
Input taxcredit
TaxableValue
23Seminar • VAT Act 2013
Illustration
PwCSeptember 2013
Taxable value
24
Seminar • VAT Act 2013
PwCSeptember 2013
25Seminar • VAT Act 2013
Section 6 – Taxable value
Repealed VAT Act
• The price for which the supplyis provided
• In case of related parties,arm’s length price
VAT Act 2013
• Consideration for the supply .
• In case of related parties, openmarket value.
• Any taxes, duties, levies, feesand charges ( other than valueadded tax) paid or payable on,or by reason of the supply,reduced by any discounts orrebates allowed andaccounted for at the time ofthe supply.
Taxable Value of local supplies and imported services...
PwCSeptember 2013
26Seminar • VAT Act 2013
Section 6 – Taxable value
Repealed VAT Act VAT Act 2013
Consideration does not include-
(a) In the case of a supply ofgoods under hire purchaseagreement, any financialcharge payable in relation toa supply of credit under theagreement;
(b) Any interest incurred for thelate payment of theconsideration for the supply
Taxable Value of local supplies and imported services...
PwCSeptember 2013
Repealed VAT Act
• Value+ amount ofcustoms duty
VAT Act 2013
• Value+ customs duty+cost of insurance andfreight+ cost of servicestreated as part ofimported goods e.g.royalty
Services mean that whichis ancillary or incidental tothe importation of goods.
Taxable value of imported goods
27Seminar • VAT Act 2013
Section 6 – Taxable value
PwCSeptember 2013
Export of services
28
Seminar • VAT Act 2013
PwCSeptember 2013
Repealed Act
“Service exported out of Kenya” means a service for use orconsumption outside Kenya whether the service is performed inKenya or outside Kenya, or both.
Regulation 20 provides that services shall be deemed to have beensupplied in Kenya:
• Where the supplier has a fixed physical establishment/businessin Kenya and the services are physically used or consumed inKenya;
Export of services
29Seminar • VAT Act 2013
Section 7 – Export of services
PwCSeptember 2013
VAT Act 2013
Section 8(1) provides that a supply of services is made in Kenya ifthe place of business of the supplier from which the services aresupplied is in Kenya.
The definition of ‘service exported out of Kenya’ means a serviceprovided for use or consumption outside Kenya.
Implication
The VAT Act 2013 has provided for clarity in respect of‘consumption’ of an export of service based on the destinationprinciple.
Export of services
30Seminar • VAT Act 2013
Section 7 – Export of services
Non-resident
PwCSeptember 2013
Deduction of input tax
31
Seminar • VAT Act 2013
PwCSeptember 2013
Section 8 – Deduction of input tax
Repealed VAT Act
• S. 10 defines “input tax” and“output tax”.
• S. 11 sets out thedocumentation required tosupport input tax deduction.
VAT Act 2013
• The definition of input taxand output tax have rightlybeen moved to theinterpretation section of theAct (S. 2).
• Clearly sets out thedocumentation required tosupport input tax deduction.This includes an original taxinvoice. However, it alsoallows suppliers to issue aclearly marked copy to aperson who has lost theoriginal.
Deduction of input tax
32Seminar • VAT Act 2013
PwCSeptember 2013
33Seminar • VAT Act 2013
Section 8 – Deduction of input tax
Items Restricted underrepealed Act
Restricted under VATAct 2013
Passenger cars and minibuses,bodies, parts, oils and services fortheir repair;
√ √
Furniture, fittings andornaments of decorative items;
√
Household or domesticelectrical appliances; and
√
Entertainment, Restaurant andAccommodation services.
√ √restricted if not forbusiness
Blocked Items
PwCSeptember 2013
Partial exemption
34
Seminar • VAT Act 2013
PwCSeptember 2013
• Method 1
- Taxable supplies x Total Input VAT = Deductible Input Tax
Total supplies
• Method 2
- Deduct all input tax directly attributable to taxable supplies;
- No deduction for input tax attributable to exempt supplies;
- Remainder of taxable supplies use method 1 above;
Where input tax attributable to exempt supplies is less than5% of total input tax, all input tax can be deducted.
Deductibility of Input tax for persons who are partiallyexempt – under the repealed Act
35Seminar • VAT Act 2013
Section 9 – Partial exemption
PwCSeptember 2013
• Input tax relating to taxable supplies is deductible infull.
• Input tax relating to other use is not deductible.
• Input tax relating to making of partly taxable suppliesand partly other uses is:
- deductible in full, if taxable supplies are morethan 90% of the total supplies
- not deductible, if taxable supplies are less than10% of the total supplies
Deductibility of Input tax for persons who partly maketaxable supplies and partly for another use under theVAT Act 2013
36Seminar • VAT Act 2013
Section 9 – Partial exemption
PwCSeptember 2013
• The amount of input tax to be deduced is determined by the formula below:
Value of all taxable supplies X Total input tax
Total supplies made
• The amount of input tax to be deducted is determined by theformula below:
Value of all taxable supplies X Input tax
Value of Total supplies made
…Deductibility of input tax 0n composite transactions
37Seminar • VAT Act 2013
Section 9 – Partial exemption
TaxableSupplies %
OtherSupplies %
Input VATclaimable
100 0 Claim fully
>90 <10 Claim fully
11-89 11-89 Apportion
<10 >90 None
PwCSeptember 2013
Revised time limits
38
Seminar • VAT Act 2013
PwCSeptember 2013
Repealed Act VAT Act 2013
Time limit for issuance ofcredit notes is 12 monthsafter the issue of the relevanttax invoice.
Time limit for issuance ofcredit notes is reduced to 6months.
Deduction of input taxallowed up to 12 months afterwhich that input tax becamedue and payable.
Deduction of input taxallowed within 6 months afterthe end of the tax period inwhich the supply orimportation occurred.
Revised time limits for issuance of Credit Notes anddeduction of Input Tax
39Seminar • VAT Act 2013
Section 10 – Revised time limits
PwCSeptember 2013
Refund of tax
40
Seminar • VAT Act 2013
PwCSeptember 2013
41Seminar • VAT Act 2013
Section 11 – Refund of tax
Repealed VAT Act
• Refund of VAT whereinput tax exceeds outputtax as a result of makingzero-rated supplies.
• Application of Refundclaims must be lodgedwithin 12 months of thedate the tax becamepayable.
VAT Act 2013
• Refund of VAT whereinput tax exceeds outputtax as a result of makingzero-rated supplies.
• No time limits withinwhich the refund wouldbe paid
Refund of tax
PwCSeptember 2013
VAT Remission
42
Seminar • VAT Act 2013
PwCSeptember 2013
Section 12 – VAT Remission
43Seminar • VAT Act 2013
• VAT Remission is abolished!
• Remission already granted under therepealed Act shall continue toremain in force for a period of 5years.
• Companies likely to be affected:
- who purchase equipment not underchapter 84 and 85;
- are in the hotel constructionbusiness; and
- in the oil exploration business
- who applied for TREO
VAT Remission
PwCSeptember 2013
Registration and Deregistration
44
Seminar • VAT Act 2013
PwCSeptember 2013
Section 13 – Registration and Deregistration
45Seminar • VAT Act 2013
Repealed VAT Act VAT Act 2013
Sixth ScheduleParagraph 1
Registrationrequired forpersons makingtaxable suppliesover KShs. 5million or more in aperiod of 12months
34 (1)& (2)
Threshold maintained.However, in determining thethreshold it excludes• the sale of capital assets and• sale of a person’s enterprise
or• cessation of business
permanently.
Sixth ScheduleParagraph 5,6, 7 , 8 & 9
Effectiveregistration date
34 (5),(7) &(8)
Simplification on registrationdates i.e as specified in theperson’s registrationcertificate.
Sixth ScheduleParagraph 13& 14
Group registration 34 (9) The Cabinet Secretary may inregulation, provide forregistration of a group ofcompanies
Registration and Deregistration
PwCSeptember 2013
Section 13 – Registration and Deregistration
46Seminar • VAT Act 2013
Repealed VAT Act VAT Act 2013
SixthScheduleParagraph 19
• Threshold KES 5m
• Notification of changeof business detailswithin 14 days
35 (2) • Threshold KES 5m (Ataxable supply of acapital asset and ataxable supply madesolely as a consequenceof the person selling thewhole or part of thepersons business , willbe excluded
• Period for notificationfor change of businessdetails extended to 21days .
SixthScheduleParagraph 10(2), 11, 12
Different penalties forvarying offences
37 Default penalty notexceeding KES 200,000applicable for all offences
Registration and Deregistration
PwCSeptember 2013
Application of InformationTechnology
47
Seminar • VAT Act 2013
PwCSeptember 2013
48Seminar • VAT Act 2013
Section 14 – Application of Information Technology
• Application for registration;
• Return/statement required by the Act;
• Any payment or repayment;
• Any notice/document required to be issued by theCommissioner; and
• Any other thing required to be done under the Act.
Information technology to be used for the following:
PwCSeptember 2013
49Seminar • VAT Act 2013
Section 14 – Application of Information Technology
Powers given to theCommissioner to establish andoperate:
• a procedure for electronicfiling of tax returns or otherdocuments by registeredpersons;
• electronic service of noticesand other documents; and
• provide written conditions forelectronic returns and notices.
Application of Information Technology
iTax
PwCSeptember 2013
Objections
50
Seminar • VAT Act 2013
PwCSeptember 2013
Section 15 – Objections
Repealed VAT Act
• No time limit withinwhich the Commissionerwas to respond to theobjections of assessmentssubmitted by tax payers.
VAT Act 2013
The Commissioner to:
• respond within 30 days after he hasreceived the notice of objection.
• to send out a notice within 15 dayssetting out an amendment orconfirming the assessment.
• Where the Commissioner fails tocommunicate within 60 days, heshall be deemed to have agreed toamend the assessment inaccordance with the objection.
Objections
51Seminar • VAT Act 2013
PwCSeptember 2013
Appeals
52
Seminar • VAT Act 2013
PwCSeptember 2013
• VAT appeals provisions excluded from the VAT Act2013 in light of the Tax Appeals Tribunal Bill 2013.
• However, transitional clauses provide for subsidiarylegislation to remain in force until new subsidiarylegislation is enacted.
Implications
• Any notifications to appeal to the Tribunal can still beeffected.
Appeals
53Seminar • VAT Act 2013
Section 16 – Appeals
PwCSeptember 2013
Tax avoidance schemes
54
Seminar • VAT Act 2013
PwCSeptember 2013
Repealed Act
Non-existent in the repealed Act.
VAT Act 2013
• A scheme is entered into when a person obtains a taxbenefit.
• Where a scheme is entered into, the Commissionershall make an adjustment and issue an assessment ofany tax liability.
Tax avoidance schemes
55Seminar • VAT Act 2013
Section 17 – Tax avoidance schemes
PwCSeptember 2013
Enforcement
56
Seminar • VAT Act 2013
PwCSeptember 2013
• Commissioner may require the production of recordsand information in respect of tax liability in order toascertain the correctness of the tax declared by the taxpayer.
• Audit to be concluded within 6 months, however, KRAcan request for extension in writing.
• Where audit is not concluded within 6 months, aregistered person can be issued with an interimcertificate indicating the progress of the audit.
Enforcement
57Seminar • VAT Act 2013
Section 18 – Enforcement
PwCSeptember 2013
Public/private rulings
58
Seminar • VAT Act 2013
PwCSeptember 2013
Repealed VAT Act
KRA would issue non-binding
• Information Letters;
• Public notices; and
• Technical circulars.
VAT Act 2013
The Commissioner is requiredto make public notices to appearin at least 2 daily newspapersspecifying;
• Subject matter;
• ID number of subject matter;and
• Effective date of ruling.
Withdrawal of publicnotice to be published innewspapers.
Public ruling
59Seminar • VAT Act 2013
Section 19 – Public/private rulings
PwCSeptember 2013
Repealed VAT Act
Specific rulings were issued tothe tax payer in respect of atechnical issue.
VAT Act 2013
Commissioner to issue privateruling upon application of theregistered person.
Private ruling
60Seminar • VAT Act 2013
Section 19 – Public/private rulings
PwCSeptember 2013
Transitional clauses
61
Seminar • VAT Act 2013
PwCSeptember 2013
62Seminar • VAT Act 2013
Section 20 – Transitional clauses
• The clauses under the repealed Actshall still remain in force for purposesof:
the assessment and collection of anytax or recovery of penalty;
subsidiary legislation consistentwith the VAT Act 2013;
remission already granted for thenext five years;
tax due to be paid or refunded, butwas not so paid or refunded; it shallbe paid or refunded as though itwere a sum due under the currentregime.
Transitional clauses
PwCSeptember 2013
Change of VAT status
63
Seminar • VAT Act 2013
PwCSeptember 2013
The Act has significantly reduced the number of exemptand zero rated supplies. All other supplies are nowtaxable at the standard rate of 16% except items listed inthe First and Second Schedule.
Reduction in zero rated and exemptsupplies…
64Seminar • VAT Act 2013
Section 21 – Change of VAT status
16%
Exempt
0%
16% Exempt 0%
A
VAT 2013 Act
Rep
eale
dV
AT
Act
None
C None
VAT Status Changes
No change in statusNONE NONE
X No change in status NONE
X X No change in status
PwCSeptember 2013
• Credit rating bureau services
• Management of a unit trust or collective investment scheme
• Sale of commercial building
• Services rendered by trade, professional and labour associations
• Postal services
• Tour operations and travel agency services
• Landing and parking services provided for aircrafts
Some examples of services moving from Exempt to 16%
Section 21 – Change of VAT status
Seminar • VAT Act 201366
PwCSeptember 2013
• Flour (rice, rye, groats and meal of wheat/maize, potatoes, driedleguminous vegetables)
• Cut flowers and flower buds
• Rocket launchers/Artillery/military weapons
Some examples of goods moving from Exempt to 16%
Section 21 – Change of VAT status
Seminar • VAT Act 201367
PwCSeptember 2013
• Electricity supply of electrical energy to domestic householdsbelow 200 KW
• Transport services for unprocessed agricultural/ agro forestproduce
• construction services in relation to grain silos
Some examples of services moving from Zero rated to16%
Section 21 – Change of VAT status
Seminar • VAT Act 201368
PwCSeptember 2013
• Goods used by the President
• Goods for the official use of the Armed Forces
• Residues and waste from the food industries; prepared animal
• Milk
• Newspapers and books
• Solar equipment and accessories
• Agricultural tractors
Some examples of goods moving from Zero rated to 16%
Section 21 – Change of VAT status
Seminar • VAT Act 201369
PwCSeptember 2013
• Milk specially prepared for infants
• Ordinary, gluten and unleavened bread.
• Wheat Flour
• Maize flour
• Cereal (except wheat, rye and barley seeds )
• Organic chemicals
• Pharmaceutical products
• Fertilizer
• Sanitary towels (pads) and tampons.
Some examples of goods moving from Zero rated toExempt
Section 21 – Change of VAT status
Seminar • VAT Act 201370
PwCSeptember 2013
An example:
Are phones and computer software taxable @ 16% or still exemptas phones are under chapter 85
Chapter 84, 85 – Interpretation
What is Plant and machinery
71Seminar • VAT Act 2013
Section 21 – Change of VAT status
PwCSeptember 2013
What does the VAT Act 2013 mean tome in the Financial Services Sector?
72
Seminar • VAT Act 2013
PwCSeptember 2013
Status changes affecting FS
VAT Act 2013
RepealedAct
Status 0% Exempt 16%
0% None None • Computer & ATM hardwareinfrastructure
• Computer software
Exempt None None • Management of unit trust orcollective investment scheme
• credit rating bureau services
12% None None • Electricity
16% None None None
73Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
PwCSeptember 2013
Exempt Financial Services as per the VAT Act 2013
74Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
Financial Services Exempt 16%
Banking Services
a) the operation of current, deposit or savingsaccounts, including the provision of accountstatements
√
b) the issue, transfer, receipt or any other dealingwith money, including money transfer services, andaccepting over the counter payments of householdbills, but excluding the services of carriage of cash,restocking of cash machines, sorting or counting ofmoney
√
c) issuing of credit and debit cards √
d) automated teller machine transactions, excludingthe supply of automated teller machines and thesoftware to run it
√
PwCSeptember 2013
Exempt Financial Services as per the VAT Act 2013
75Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
Financial Services Exempt 16%
e) telegraphic money transfer services √
f) foreign exchange transactions, including thesupply of foreign drafts and international moneyorders
√
g) cheque handling, processing, clearing andsettlement, including special clearance orcancellation of cheques
√
h) the making of any advances or the granting of anycredit
√
i) issuance of securities for money, including bills ofexchange, promissory notes, money and postalorders
√
j) the provision of guarantees, letters of credit andacceptance and other forms of documentary credit
√
PwCSeptember 2013
Exempt Financial Services as per the VAT Act 2013
76Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
Financial Services Exempt 16%
k) the issue, transfer, receipt or any other dealingwith bonds, debentures, treasury bills, shares andstocks and other forms of security or secondarysecurity
√
l) the assignment of a debt for consideration √
m) the management of a unit trust or collectiveinvestment scheme registered by the CapitalMarkets Authority and managed by the trustees ofthe scheme
√
n) credit rating bureau services provided by a creditagency registered by the Capital Market Authority
√
o) The provision of the above financial services onbehalf of another on a commission basis.
√
PwCSeptember 2013
Exempt Financial Services as per the VAT Act 2013
77Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
Financial Services Exempt 16%
Insurance and Reinsurance Services
management and related insurance consultancyservices
√
actuarial services √
services of insurance assessors and loss adjusters √
PwCSeptember 2013
• The repealed Act exempted sale ofbuildings.
• The VAT Act 2013 only exempts saleof residential property thus makingthe sale of non residential buildingssubject to VAT at 16%.
• Purchasers of non residentialbuildings likely to be impacted withthis change.
Sale of Commercial Building
78Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
PwCSeptember 2013
• In the repealed Act , financialinstitutions are required to accountfor tax only upon being requestedby a registered person to issue aletter of undertaking to declare thattax will be charged upon sale ofrepossessed assets .
• Under VAT Act 2013, sale ofrepossessed assets are subject toVAT and therefore financialinstitutions will be required toaccount for tax upon sale of suchassets without any requirement of aletter of undertaking.
Sale of repossessed assets
79Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
PwCSeptember 2013
• In the repealed Act , there was noexpress mention of the VAT statuson electronic services and access todatabases.
• Under VAT Act 2013, a supplymade in Kenya includes a supply ofelectronic services which has nowbeen defined to include websites,web hosting and accessing data etc.
• Fees charged in respect of theabove will be imported services andwill be accounted for as above (slide 22 and 23).
•
Electronic Commerce & Banking
80Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
PwCSeptember 2013
Group registration
• In the repealed Act, thecommissioner had the power toallow a group of companies to beregistered as one upon application.
• This provision was rarely applied!
• In the VAT Act 2013, this mandate isnow bestowed on the CabinetSecretary who is expected to releaseregulations to provide forregistration of a group ofcompanies.
Other Provisions
81Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
PwCSeptember 2013
Self Supply of rent on commercialBuildings
• In the repealed Act, there was asupply in cases where there was anappropriation by a registered personof taxable supplies for his own useinside of the business where ifsupplied by another registeredperson, the tax charged on suchsupplies is excluded from thededuction of input tax;
• Under the VAT Act 2013, thedefinition of supply does not includethe above.
Other Provisions
82Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
PwCSeptember 2013
Self Supply of rent on CommercialBuildings
• The VAT Act 2013 is silent on theissue of self supply and it can beconstrued to be outside the scope.
Other Provisions
83Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
PwCSeptember 2013
• No Self Supply
• Impact on PartialExemption
• Importation ofservices
• VAT status change
• Sale of commercialbuildings
What this means
84Seminar • VAT Act 2013
Section 22 – What does the VAT Act 2013 mean to me in the Financial Services Sector?
PwCSeptember 2013
Questions & answers
85
Seminar • VAT Act 2013