To increase revenue, the government of Kenya requires every adult to have a KRA PIN. You will also be asked for a tax compliance certificate (TCC) if you want to do business with the government or apply for a high ranking position. Since KRA has made it so easy for Kenyans to file and pay their taxes on the iTax platform, everybody with internet access can do it. There is no excuse for not paying VAT in Kenyan.
Unfortunately, to comply with the government rules, most people find themselves in the line of fire. People are shocked when they find out they can’t get TCC because they owe KRA thousands of Kenya shillings. More often than not, this happens because of Value Added Tax or VAT.
There are two ways an individual or a company can register for VAT in Kenya;
Automatic registration where you have met the threshold for being an agent, but you have not registered, so the commissioner does it for you.
Voluntary where you tick the VAT obligation section when you are applying for the PIN.
This second option is where most people fall into the trap.
What is VAT?
Kenya value-added tax is charged when you purchase or supply taxable goods or services from local companies or import. It is billed as 16% or 0% on taxable products and services. However, VAT registration is only necessary if your expected annual turnover is above 5 million Kenya shillings. If you register for VAT in Kenya as a taxpayer, you are obligated to;
Charge and collect VAT when invoicing any taxable supplies
Remit the collected VAT to KRA
File VAT returns before the 20th of every month.
If your annual turnover is less than 5 million, you are still required to charge VAT on every taxable supply and file returns every month before the 20th. Failure to do this will cost you between Kshs. 10,000 to 20,000 depending on when you registered. Due to a lack of knowledge, some people don’t file their monthly returns and continue to accrue penalties every month unbeknownst to them.
VAT in Kenya Deregistration
Based on the fact that many people erroneously register for VAT, the Vat Act allows the commissioner to deregister a person with good reason. You have to apply for the cancellation of VAT by writing to the commissioner explaining why you want to be deregistered. However, it is under the discretion of the VAT commissioner whether to accept your cancellation or not.
If the commissioner accepts your application, you will be informed in writing to stop filing for returns and charging VAT. Until you receive this letter, you must continue filing your monthly returns on time and fulfilling the obligations of VAT agents.
What happens to the penalties you acquired for non-compliance?
You can apply for a waiver with the commissioner or pay them. You have to give enough reasons as to why they should cancel your penalties, and lack of knowledge will not be a good enough answer. However, if you are lucky, the commissioner will deregister you automatically if you don’t meet the criteria for being a Kenya VAT agent.