Introduction.
Value Added Tax (VAT) has a prominent place in the world of taxes. VAT is a consumption tax that is imposed on the value added to goods and services at each step of production or distribution. It is now in use in many nations across the world. In Kenya, just like in other many countries across the globe, Value Added Tax (VAT) has become an essential component of the country’s tax system.
Introduced in 1991, VAT is a consumption tax levied on the supply of goods and services within the country. In the recent financial bill that was passed in parliament and signed into law by the 5th president of Kenya, Hon. William Ruto on Wednesday 21st day of June, saw the VAT on fuel products rise from 8% to 16% effective from 1st July, 2023. This has brought up a lot of controversies in the country.
Frimor Safe Way Solutions has dedicated staff who will give you a detailed information that will provide you a thorough grasp of VAT, including its function, workings, and effects on both businesses and consumers.
A question that both you and I might ask ourselves is that, what is Value Added Tax (VAT)?
Understanding Value Added Tax.
Value Added Tax is an indirect tax imposed on the sale of goods and services. VAT is a type of indirect tax that is included in the final price of a good or service and is paid by the customer, as opposed to direct taxes that are charged on income or profits. Since it is a multi-stage tax, each seller deducts the VAT paid on inputs from the VAT collected on outputs at each stage of production and distribution.
Purpose and objective of Value Added Tax.
In Kenya, the VAT’s main objective is to bring in money for the government. VAT is a key source of government funding that helps in supporting infrastructure development, public services, and other government spending. By taxing consumption rather than income or profits, VAT strives to create a fair and equitable tax system by distributing the tax burden among a variety of people and enterprises.
Value Added Tax Registration.
In Kenya a business must register for VAT if it makes taxable deliveries of goods or services and its annual revenue exceeds a specific level (currently KES 5 million). An application must be submitted to the Kenya Revenue Authority (KRA) in order to register, and a VAT registration certificate must be obtained upon registration. Frimor Safe Way Solutions is at your door step just by a click of button to guide you through the registration process. Businesses must charge VAT on their taxable supplies after they are registered, and they must submit the VAT they have collected to the tax authorities.
Value Added Tax Rates in Kenya.
In Kenya, there are two standard VAT rates: the standard rate and the zero rate.
Standard Rate.
Kenya’s current standard VAT rate is 16%. The majority of goods and services that are subject to VAT are subject to this rate.
Zero Rate.
A 0% VAT rate is applied to a number of products and services, including exports, agricultural products, medications, and educational services. Since the rate is zero, VAT is still applicable but is effectively applied to these supplies.
Value Added Tax Exemption.
There are several exclusions from the VAT, despite the fact that the majority of goods and services are. Basic consumables, unprocessed agricultural goods, medical supplies, financial services, rental income from residential properties, and educational services are all free from this tax. The purpose of these exemptions is to lower the tax burden on necessary goods and services.
Value Added Tax Impact on Businesses and Consumers.
VAT has financial and administrative repercussions for enterprises. Businesses must account for VAT costs when making financial decisions and ensure accurate accounting and documentation of all VAT-related activities. Businesses that have registered for VAT may also file claims for input VAT credits, which let them recoup the VAT they spent on purchases and other expenses. Businesses must, however, also keep proper records, submit their VAT returns on time, and submit to routine VAT audits.
VAT raises the price of the goods and services people buy. Since businesses pass on the VAT charges to customers in the form of higher pricing, the burden of VAT ultimately rests on the consumer. However, the impact on consumers’ budgets is lessened by the zero-rating of some necessary goods and services.
Conclusion.
Value Added Tax (VAT) is a crucial component of Kenya’s tax structure and a substantial source of funding for the government. A fair and inclusive tax system is ensured by the use of VAT, which levies a consumption tax on goods and services. Both businesses and consumers must comprehend the VAT’s purpose, registration process, rates, exemptions, and effects. Businesses who abide by VAT standards help the economy of the nation while paying for this consumption tax is paid by consumers.
Nice read
Thank you