@BusinessDaily

Tax system calibration major test for KRA in 8pc fuel levy

2 months ago, 18 Sep 16:43

By: Job Kabochi And I ...

Measured against the intense pain and financial burden that the new 16 per cent Value Added Tax (VAT) on fuel has caused across the Kenyan economy, the proposed reduction of the rate to eight per cent must have come as big relief for fuel marketers, distributors and consumers.

No one can deny that the lower VAT rate is a better option than the previous exemption regime, which among other challenges did not allow fuel distributors’ credits for the VAT incurred in the business of supplying fuel.

Consequently, all non-recoverable VAT was loaded on the final pump prices and borne by the consumer.

With a lower VAT rate, however, the fuel marketers and other players in the fuel supply chain will now be entitled to a recovery of the VAT incurred by their businesses.

The expectation is that the final pump price will go down and that the government will actualise its revenue collection target. On the balance of things this policy shift appears to result in a win-win situation for all stakeholders.

Yet for the eight per cent proposal to become effective, Parliament must amend the Finance Bill, 2018 in line with President Uhuru Kenyatta’s recommendation.

Otherwise, Parliament has the right through a two-thirds majority vote to pass the Bill a second time without amendment, or with amendments that do not fully accommodate the President’s recommendations.

In the latter case, the Bill will have to be re-submitted to Mr Kenyatta for his assent within seven days.

The question is whether Parliament’s approval of the presidential proposal is the only requirement needed to operationalise the lower VAT rate. The answer is, certainly not!

Unfortunately, the lower VAT rate of eight per cent that Mr Kenyatta has proposed is not supported by the provisions of the VAT legislation.

This is because the Value Added Tax Act, 2013 only allows the National Treasury Cabinet Secretary (CS), subject to Parliament’s approval, the discretion to vary the rate of VAT by either decreasing or increasing the rate by four percentage points.

This means that the existing VAT rates, 0 per cent and 16 per cent, may be varied from zero to four per cent, a reduction from 16 per cent to 12 per cent or an increase to a maximum rate of 20 per cent.

Ultimatley, if parliament adopts the 8 per cent VAT, further amendments to the provisions of the VAT laws will be required to enable the CS vary the existing rate beyond the four percentage points provided for in law.

Otherwise, the lower eight per cent VAT rate proposal will contradict the provisions of the existing VAT law and potentially open the new tax to legal challenge.

It is also apparent that if Parliament adopts the lower VAT rate the Kenya Revenue Authority (KRA) will have to make various amendments to its administrative framework to accommodate the new rate.

This is because the KRA’s online platform, the iTax, makes a special provision for a lower rate of 12 per cent, which is not activated.

The KRA will need to activate this provision on ‘other rated sales’ for eight ...
Read More


Category: business news

Suggested

10 hours ago, 19:12
@BusinessDaily - By: Brian Ngugi
Mergers to help banks weather interest rate caps

Kenyan commercial banks are coming under pressure to merge and create entities large enough to survive financial crisis in the wake of stricter regulatory and competitive landscape. ...

Category: business markets news opinion
5 hours ago, 00:06
@StandardMedia - By: Dominic Omondi
Taxpayers get short end of stick in Treasury’s borrowing binge

With most of the cash going into debt repayment and some of it lost to graft, this has cut off financing to essential areas of the economy. ...

Category: business news
5 hours ago, 00:06
@StandardMedia - By: Frankline Sunday
Fact Checker: Uhuru’s claim old hands are clean from graft allegations not true

Recently nominated Moody Awori was among the officials recommended for prosecution for their role in the Anglo Leasing scandal ...

Category: business news
5 hours ago, 00:06
@StandardMedia - By: Standard Reporter
Leading youth entrepreneurs of the year unveiled

The awards are designed to identify upcoming and industrious entrepreneurs aged below 35 years with great business acumen ...

Category: business news
5 hours ago, 00:06
@StandardMedia - By: Dominic Omondi
Disproportionate: Sh6b wasted on fertiliser as State plan fails to raise yields

New data shows cereals production for the nine years have not improved despite the billions poured into State’s subsidy programme. ...

Category: business news
6 hours ago, 23:29
@TheStar - By: Elizabeth Kivuva ...
Ethiopian Airlines frustrating open skies deal - Mikosz

Kenya Airways has accused Ethiopian Airlines of protectionism and government backing to become largest transfer hub for long-haul travel to Africa.KQ chief executive Sebastian Mikosz said that the str ...

Category: topnews news business

@BusinessDaily

Tax system calibration major test for KRA in 8pc fuel levy

2 months ago, 18 Sep 16:43

By: Job Kabochi And I ...

Measured against the intense pain and financial burden that the new 16 per cent Value Added Tax (VAT) on fuel has caused across the Kenyan economy, the proposed reduction of the rate to eight per cent must have come as big relief for fuel marketers, distributors and consumers.

No one can deny that the lower VAT rate is a better option than the previous exemption regime, which among other challenges did not allow fuel distributors’ credits for the VAT incurred in the business of supplying fuel.

Consequently, all non-recoverable VAT was loaded on the final pump prices and borne by the consumer.

With a lower VAT rate, however, the fuel marketers and other players in the fuel supply chain will now be entitled to a recovery of the VAT incurred by their businesses.

The expectation is that the final pump price will go down and that the government will actualise its revenue collection target. On the balance of things this policy shift appears to result in a win-win situation for all stakeholders.

Yet for the eight per cent proposal to become effective, Parliament must amend the Finance Bill, 2018 in line with President Uhuru Kenyatta’s recommendation.

Otherwise, Parliament has the right through a two-thirds majority vote to pass the Bill a second time without amendment, or with amendments that do not fully accommodate the President’s recommendations.

In the latter case, the Bill will have to be re-submitted to Mr Kenyatta for his assent within seven days.

The question is whether Parliament’s approval of the presidential proposal is the only requirement needed to operationalise the lower VAT rate. The answer is, certainly not!

Unfortunately, the lower VAT rate of eight per cent that Mr Kenyatta has proposed is not supported by the provisions of the VAT legislation.

This is because the Value Added Tax Act, 2013 only allows the National Treasury Cabinet Secretary (CS), subject to Parliament’s approval, the discretion to vary the rate of VAT by either decreasing or increasing the rate by four percentage points.

This means that the existing VAT rates, 0 per cent and 16 per cent, may be varied from zero to four per cent, a reduction from 16 per cent to 12 per cent or an increase to a maximum rate of 20 per cent.

Ultimatley, if parliament adopts the 8 per cent VAT, further amendments to the provisions of the VAT laws will be required to enable the CS vary the existing rate beyond the four percentage points provided for in law.

Otherwise, the lower eight per cent VAT rate proposal will contradict the provisions of the existing VAT law and potentially open the new tax to legal challenge.

It is also apparent that if Parliament adopts the lower VAT rate the Kenya Revenue Authority (KRA) will have to make various amendments to its administrative framework to accommodate the new rate.

This is because the KRA’s online platform, the iTax, makes a special provision for a lower rate of 12 per cent, which is not activated.

The KRA will need to activate this provision on ‘other rated sales’ for eight ...
Read More

Category: business news

Suggested

10 hours ago, 19:12
@BusinessDaily - By: Brian Ngugi
Mergers to help banks weather interest rate caps

Kenyan commercial banks are coming under pressure to merge and create entities large enough to survive financial crisis in the wake of stricter regulatory and competitive landscape. ...

Category: business markets news opinion
5 hours ago, 00:06
@StandardMedia - By: Dominic Omondi
Taxpayers get short end of stick in Treasury’s borrowing binge

With most of the cash going into debt repayment and some of it lost to graft, this has cut off financing to essential areas of the economy. ...

Category: business news
5 hours ago, 00:06
@StandardMedia - By: Frankline Sunday
Fact Checker: Uhuru’s claim old hands are clean from graft allegations not true

Recently nominated Moody Awori was among the officials recommended for prosecution for their role in the Anglo Leasing scandal ...

Category: business news
5 hours ago, 00:06
@StandardMedia - By: Standard Reporter
Leading youth entrepreneurs of the year unveiled

The awards are designed to identify upcoming and industrious entrepreneurs aged below 35 years with great business acumen ...

Category: business news
5 hours ago, 00:06
@StandardMedia - By: Dominic Omondi
Disproportionate: Sh6b wasted on fertiliser as State plan fails to raise yields

New data shows cereals production for the nine years have not improved despite the billions poured into State’s subsidy programme. ...

Category: business news
6 hours ago, 23:29
@TheStar - By: Elizabeth Kivuva ...
Ethiopian Airlines frustrating open skies deal - Mikosz

Kenya Airways has accused Ethiopian Airlines of protectionism and government backing to become largest transfer hub for long-haul travel to Africa.KQ chief executive Sebastian Mikosz said that the str ...

Category: topnews news business
Our App