How do I account for VAT on imported services?

Importers of imported services are required to generate a payment slip online via iTax and make payment at any of the KRA appointed banks.

When is VAT on Imported Services due?

VAT on imported services is payable at the time when any of the below happens:

  • The taxable service is received; or
  • An invoice is received in respect of the service; or
  • Payment is made for all or part of the service.

 

Tax paid on imported services for use in the registered person’s taxable business may be deducted as input tax in subsequent VAT 3 returns.

As an individual/organization should I pay VAT and income tax as well?

Income tax is a compulsory tax obligation whereas, for VAT, you pay for it when you are registered with VAT.

How do I register for VAT?

Any trader whose annual taxable turnover is Ksh.5,000,000 and above must register with VAT via the iTax system, where the VAT is added as a tax obligation and an approval done by the station.

Must I buy an ETR after registering with VAT?

YES

Who is supposed to use an ETR?

A registered VAT trader.

Do the ETR’s still work or they are just bought and installed and that is the end of them?

It is illegal to fail to use an ETR.

Who are the approved ETR sellers?

Kindly check the list from the KRA website (www.kra.go.ke).

Is the cost of ETR claimable?

No. Only the input tax is claimable

Are there different types of ETR machines?

Yes. They include: Electronic Tax Registers (ETR), Electronic Fiscal Printer (EFP) and Electronic Signature Device (ESD). They are designed for different business types/size or nature/volume of transactions.

Why should KRA appoint me as a withholding VAT agent without my consent?

The minister empowers the commissioner to appoint any eligible taxpayer to be a withholding agent.

When I issue an ETR receipt, is that all, or KRA still expects more from me?

You are required to declare the same under the VAT returns and pay any tax due by the due dates.

How do I calculate VAT

VAT works under the Input / Output Tax system

 Input tax refers to VAT charged on purchases of taxable purchases and expenses for business   purposes.

 Output tax refers to the VAT charged on the sales of taxable goods or services.

 Tax payable is the difference between the Output tax and the Input tax.        

Output Tax – Input Tax = Tax Payable

 

EXAMPLE:

PURCHASES                                                                                                  Kshs

Purchase net price                                                                                    10,000

16% VAT                                                                                                                    1,600  (Input tax)

Gross purchase price                                                         11,600

SALES

Gross purchase price                                                               11,600

Less VAT paid                                                                         1,600

Net Purchase price                                                             10,000

Add 20% profit margin                                                                                          2,000

Net Sales Price                                                                                12,000

Add 16% VAT                                                                                                            1,920 (Out Put Tax)

Selling Price                                                                         13,920

                                                            1,920 -1,600 = 320 N/B: 16%  * 2,000 = 320