How to Apply for the VAT Refunds In Kenya: Everything You Need to Know

Welcome to this comprehensive article on how to apply for a Value Added Tax (VAT) refund in Kenya and gain a deeper understanding of VAT in the country. In this article, we'll cover everything you need to know about VAT, from its basic principles to the intricate details of the refund process. So, let's dive in and demystify the world of VAT in Kenya.

Key Takeaways

1. VAT is a consumption tax on taxable goods and services in Kenya.
2. VAT registration is mandatory for businesses with an annual turnover of Kshs—5,000,000 or more and voluntary for others.
3. Kenya has three VAT rates: 0%, 8%, and 16%, depending on the supply type.
4. VAT becomes payable when goods or services are supplied, an invoice is issued, payment is received, or a certificate is issued.
5. You can claim a VAT refund in various scenarios, including zero-rated supplies, Tax withheld by agents, tax paid in error, and bad debts.
6. To apply for a VAT refund, use the iTax portal and follow the specified steps.

Value Added Tax, commonly known as VAT, is a crucial component of Kenya's tax system. It's a consumption tax levied on the supply and importation of taxable goods and services within Kenya. The Kenya Revenue Authority (KRA) is responsible for collecting VAT on behalf of the government. In this article, we'll break down the VAT process, including who should register for VAT, rates, and how to file your VAT returns.

VAT Basics

What is Value Added Tax (VAT)?

Value Added Tax (VAT) is a consumer tax on the supply and importation of taxable goods or services made in Kenya. It's a tax that applies at every stage of the production and distribution chain, ultimately paid by the end consumer.

Who Should Register for VAT?

To determine whether you need to register for VAT, consider the following criteria:

• If you expect to have or have an annual taxable turnover of Kshs. 5,000,000 and above, VAT registration is mandatory.
• Voluntary registration is an option for traders who make or intend to make taxable supplies, even if their turnover is below the threshold.

VAT Rates

Kenya has three VAT rates:

1. 0% VAT: This applies to zero-rated supplies, such as goods listed in the 2nd Schedule to the VAT Act, including exporting goods/services and supplies to EPZs, privileged persons, and public bodies.
2. 8% VAT: This rate is for specific goods like petroleum oils obtained from bituminous sources, motor spirits, aviation spirits, and more.
3. 16% VAT: The general rate for Kenya's other goods and services.

When is VAT Payable?

VAT becomes due and payable when any of the following conditions are met:

• Goods or services are supplied to the purchaser.
• An invoice is issued in respect of the supply.
• Payment is received for all or part of the supply.
• A certificate is issued by an architect, surveyor, or any person acting as a consultant or in a supervisory capacity regarding the service.

How to Apply for VAT Refund

Now, let's focus on the primary topic of this article: how to apply for a VAT refund in Kenya. There are various scenarios in which you can claim a VAT refund:

Refunds arising from Zero Rated Supplies

You can claim a refund if you're a registered VAT taxpayer dealing with taxable supplies listed under the Second Schedule of the VAT Act and have made zero-rated supplies. Ensure the claim is on inputs solely used to make the zero-rated supplies. Remember to claim within 12 months from the date of the supplies.

Refunds arising from Tax Withheld by Appointed Agents

When a contractor supplies goods or services to an appointed withholding VAT agent, and the agent withholds Tax at 2%, you can claim a refund of the excess Tax. This puts the contractor in a refund position.

Tax Paid in Error

In cases where a withholding VAT agent withholds Tax for the wrong taxpayer, you can apply for a refund for the Tax paid in error. The claim should be made within 12 months from the date of payment.

Bad Debts

If you're a supplier whose buyer hasn't paid for goods supplied, you can claim bad debts. However, this claim should be made within 3 years, with the condition that the buyer has been declared insolvent by the court. You must prove that all avenues to claim the debt, including seeking redress from the court, have been unsuccessful. This claim has a 5-year limit. If granted, you must refund the VAT to the commissioner within 30 days of the compensation.

How to Apply for the VAT Refund

To apply for a VAT refund, follow these steps:

1. Logon to itax.kra.go.ke: Enter your KRA PIN and Password.
2. On the iTax menu, select VAT under the refunds menu.
3. Confirm taxpayer details and click next.
4. Fill in the taxpayer's bank account details and click next.
5. Select your refund type, the claim reason, the description of the reason for the claim, and the amount, then submit.

Penalties for Late Filing and Payment

Failure to adhere to VAT filing and payment deadlines can result in penalties and interest charges:

• Late Filing: A penalty of either KES 10,000 or 5% of the due tax amount, whichever is higher, applies for delayed filing of returns.
• Late Payment: Late payments incur a penalty of 5% of the due tax amount, along with a 1% monthly interest charge on the unpaid Tax until it is settled.

READ ALSO: VAT in Kenya: What is VAT, How to Calculate it, Eligibility, and Rates in Kenya

Conclusion

Understanding the ins and outs of Value Added Tax (VAT) in Kenya, including how to apply for a VAT refund, is essential for businesses and individuals. VAT plays a significant role in the country's revenue collection, and knowing how it works can help you navigate the tax landscape more effectively. Remember to adhere to the guidelines and file your VAT returns promptly to avoid penalties.

Frequently Asked Questions (FAQs)

Who is eligible to register for VAT in Kenya?

• Businesses with an annual taxable turnover of Kshs. Five million and above are required to register for VAT. Voluntary registration is also an option for businesses with lower turnovers.

What are the VAT rates in Kenya?

• Kenya has three VAT rates: 0% for zero-rated supplies, 8% for specific goods, and 16% for most other goods and services.

When is VAT payable in Kenya?

• VAT becomes payable when goods or services are supplied, an invoice is issued, payment is received, or a certificate is issued.

How can I claim a VAT refund in Kenya?

• You can claim a VAT refund in various scenarios, such as zero-rated supplies, Tax withheld by agents, tax paid in error, and bad debts. To apply for a refund, use the iTax portal and follow the specified steps.

What happens if I don't file my VAT returns on time in Kenya?

• Late filing of VAT returns can result in penalties, including Kshs—10,000 or 5% of the due tax amount. Late payment of VAT incurs a penalty of 5% of the due tax amount and an interest of 1% per month on the unpaid Tax until it's paid in full.