Introduction
VAT is imposed on consideration of a supply. Consideration of supply comprises many items such as the price of goods, transport costs etc.
Under the Kenyan VAT law, the VAT rate should be imposed on the consideration to determine the amount of VAT to be charged.’]
What is a consideration?
Under the VAT law in Kenya, consideration is the total cost in monetary terms that is exchanged for a supply that is subject to VAT. Consideration is not composed of one item but several items. However, VAT is not imposed on all the items that comprise consideration of a supply. In determining consideration of supply for purposes of imposing VAT, several items are not include.
Items excluded in consideration
The following are some of the items that are not included in the consideration.
- Financial charge for goods that are sold under hire purchase agreements about a supply that is on credit. This item is excluded so that it does not result in price increase and for purposes of determining the price.
- Interest incurred for late payment of consideration for supply in cases where a transaction is not on a cash basis but credit basis. The interest is excluded so that it does not result in a price increase. Also, interest rates are capped in Kenya.
- Tourism levy that is imposed under the Tourism Act (2011) in the supply of accommodation, restaurant services etc. This item is excluded since it may result in higher prices that would discourage tourism in the country.
- Service charge in lieu of tips in hotels and restaurants. Including this item in the consideration would result in price increase and discourage giving tips in hotels and restaurants.
- Disbursements that are determined as such where the recipients merely receive the money to pay on behalf of their client or customer for example court fees. Including this item would result in a price increase.
- Output VAT that is charged in the supply. Including this item would result in higher prices and imposing a tax on tax. Also, this is against the provisions of the VAT Act (2013).
- Exempt portion of a supply which would increase the consideration resulting in a higher price and VAT amount. Also, this is against the provisions of the VAT Act (2013). This is in cases where a taxpayer has mixed supplies of taxable and exempt supplies.
It is important to note that the Tax Commissioner may add other items to be excluded from the consideration for VAT purposes.
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Disclaimer
This post is for general overview and guidance and does not in any way amount to professional advice. Hence, www.taxkenya.com, its owner or associates do not take any responsibility for results of any action taken on the basis of the information in this post or for any errors or omissions. Kenyan taxpayers must always rely on the most current information from KRA. Tax industry in Kenya is very dynamic.
