Tax Seminar VAT Act 2013 - PwCEvolvement of Value Added Tax (VAT) in Kenya 2 Seminar • VAT Act...
Transcript of Tax Seminar VAT Act 2013 - PwCEvolvement of Value Added Tax (VAT) in Kenya 2 Seminar • VAT Act...
SeminarVAT Act 2013
Tax
September 2013
Strictly Privateand Confidential
Agenda
1 Introduction 1
2 Changes in interpretation 10
3 Rates of Tax 13
4 Time and Place of supply 15
5 Imported services received by registered persons 21
6 Taxable value 24
7 Export of services 27
8 Deduction of input tax 30
9 Partial exemption 33
10 Revised time limits 37
11 Refund of tax 39
12 VAT Remission 41
13 Registration and Deregistration 43
14 Application of Information Technology 46
Page
Agenda
15 Objections 49
16 Appeals 51
17 Tax avoidance schemes 53
18 Enforcement 55
19 Public/private rulings 57
20 Transitional clauses 60
21 Implications on Consumer, Industry and ProductSector (CIPS) and Services Sector
62
22 What does this mean? 65
23 Change of VAT status 67
24 Questions & answers 77
Page
PwCSeptember 2013
Introduction
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Seminar • VAT Act 2013
PwCSeptember 2013
• Focused onmanufacturing andimportation of goodsonly
• Tax collected at onestage only
Objective – expand thetax base and increaseGovernment revenue butexpectations not fullymet
• Tax at every stage of thesupply chain
Numerous amendmentscreated complexitiesand uncertainties inthe VAT Act
Objectives:
• Simplification
• Broadening the Tax Base
• Best Practice
Step in the rightdirection, but needs
fine-tuning
Evolvement of Value Added Tax (VAT) in Kenya
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Section 1 – Introduction
Sales tax VAT Act, 1990 VAT Act, 2013
PwCSeptember 2013
June 2010
Announcement
August 2011
Draft VAT Billpublished
January 2012
Public Forum
June 2012
VAT Bill, 2012published
June 2013
VAT Bill, 2013published
16 August 2013
VAT Act, 2013published
2 September2013
Commencementdate
The journey
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Section 1 – Introduction
PwCSeptember 2013
• Import/Export of services ;
• Simplified administrativeprocedures e.g. on transfer of abusiness as a going concern
Positive aspects
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Section 1 – Introduction
PwCSeptember 2013
• VAT status change on basiccommodities
• Abolition of VAT remission
Disappointments
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Section 1 – Introduction
PwCSeptember 2013
• Expansion of scope of business
• Persons covered
• Change in status of taxable supplies – shift to from zero/exempt to standard
Broadening the tax base
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Section 1 – Introduction
PwCSeptember 2013
Per the Repealed Act
Trade, commerce or manufacture or any concern in the nature of trade,commerce and manufacture;
VAT ACT,2013
a) Trade, commerce, manufacture, vocation or occupation;
b) Any activity carried on by a person continuously or regularly, whether or notfor gain or profit and which involves, in part or in whole the supply ofgoods or services for consideration; and
c) A supply of property by way of lease, licence, or similar arrangement.
Business
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Section 1 – Introduction
PwCSeptember 2013
An individual, company, partnership, association of persons, trust, estate, thegovernment, a foreign government, or a political subdivision of the governmentor foreign government
Company…
Company means a company as defined in the Companies Act or a corporatebody formed under any other written law including a foreign law.
Person …Now defined
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Section 1 – Introduction
PwCSeptember 2013
• Any person who supplies taxable goods or services for consideration will berequired to register for VAT ( subject to threshold)
The implications re business and persons
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Section 1 – Introduction
PwCSeptember 2013
Changes in interpretation
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PwCSeptember 2013
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Section 2 – Changes in interpretation
Repealed VAT Act VAT Act 2013
Goods Taxable goods-Electricity and any othergoods other than thosespecified in the 2nd
schedule
Goods - Tangible movable andimmovable property and includeselectrical or thermal energy, gas andwater but does not include money.
Importation Bringing or cause to be brought intoKenya from a foreign country or froman export processing zone.
PwCSeptember 2013
Repealed VAT Act VAT Act 2013
Importer A person who importstaxable goods
The person who owns the goods or anyother person who is for the time beingin possession of or beneficiallyinterested in the goods at the time ofimportation.
Supply • Supply or delivery oftaxable goods toanother person;
• sale or provision oftaxable services toanother person;
• making of a gift of anytaxable goods orservices ; or
• any other disposal oftaxable goods orprovision of taxableservices.
The definition categorises in to:
• Supply of goods;• Supply of services ; and• Supply of imported services.
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Section 2 – Changes in interpretation
PwCSeptember 2013
Rates of Tax
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PwCSeptember 2013
• Two rates for VAT:
0% for zero rated supplies; and
16% for any other supply.
• 12% rate scrapped thereforeelectrical energy and industrial oilsnow taxable at 16%.
Rates of tax
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Section 3 – Rates of Tax
PwCSeptember 2013
Time and Place of supply
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PwCSeptember 2013
The earlier of the date:
• on which goods are delivered or services performed;
• a certificate is issued by an architect, surveyor, or consultant;
• on which the invoice is issued; or
• on which payment for is received, in whole or part.
Time of supply of local supplies and imported services
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Section 4 – Time and Place of supply
PwCSeptember 2013
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Section 4 – Time and Place of supply
• Time of supply of imported goods shall be:
• Time of customs clearance for goods cleared for homeuse at the port of importation or at an inland station;
• At the time of final clearance from a warehouse forhome use;
• At time of removal of goods from an export processingzone for home use; and
• At the time goods are brought into Kenya, in any othercase.
Time of supply of imported goods
PwCSeptember 2013
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Section 4 – Time and Place of supply
Local Services
• A supply of services is made inKenya if the place of business ofthe supplier from which the servicesare supplied is in Kenya.
Local Goods
Supply of goods occurs in Kenya if:
• they are delivered or made availablein Kenya by the suppliers;
• their supply involves theirinstallation or assembly at a place inKenya; or
• goods are delivered outside Kenyaand these were in Kenya whentransportation commenced.
Place of supply of local services and goods
PwCSeptember 2013
Section 4 – Time and Place of supply
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These will be deemed to be made in Kenya if they are:
Physically performed in Kenya;
Directly related to immovable property in Kenya;
Radio or broadcasting services received at an address in Kenya;
Transfer or assignment of, or grant of a right to use, a copyright,trademark, patents etc; or
Electronic services delivered to a person in Kenya at the timeof supply.
The non-resident supplier is required to appoint a taxrepresentative to meet his obligations
Place of supply of services provided by a non - residentsupplier if the recipient is not a registered person
PwCSeptember 2013
Section 4 – Time and Place of supply
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• Tax representatives:
- to be registered in the nameof non-resident person beingrepresented.
-will have the responsibilityfor doing all things requiredby the non-resident.
Commissioner may appointupon failure of the non-resident to do so;
Tax Representatives
PwCSeptember 2013
Imported services received byregistered persons
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PwCSeptember 2013
Section 5 – Imported services received by registered persons
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Accounting for VAT
This will be accounted for as follows:
1. Fully taxable persons
Will get credit for full input tax payableby having the taxable value of theimported services reduced to zero andwill be accounted for as output in theVAT 3 return.
2. Mixed supplies persons
Registered persons will get credit forthe part of input tax that relates totaxable supplies.
VAT on imported services received by registered persons
A registeredperson will
be deemed tohave made a
taxablesupply tohimself.
PwCSeptember 2013
Section 5 – Imported services received by registered persons
Fully taxableperson
100
(100%)
Nil
PartiallyTaxableperson
100
(80%)
20
ImportValue
Input taxcredit
TaxableValue
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Illustration
PwCSeptember 2013
Taxable value
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Section 6 – Taxable value
Repealed VAT Act
• The price for which the supplyis provided
• In case of related parties,arm’s length price
VAT Act 2013
• Consideration for the supply .
• In case of related parties, openmarket value.
Taxable Value of local supplies and imported services...
PwCSeptember 2013
Repealed VAT Act
• Value+ amount ofcustoms duty
VAT Act 2013
• Value+ customs duty+cost of insurance andfreight+ cost of servicestreated as part ofimported goods e.g.royalty
Services mean that whichis ancillary or incidental tothe importation of goods.
Taxable value of imported goods
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Section 6 – Taxable value
PwCSeptember 2013
Export of services
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PwCSeptember 2013
Repealed Act
“Service exported out of Kenya” means a service for use orconsumption outside Kenya whether the service is performed inKenya or outside Kenya, or both.
Regulation 20 provides that services shall be deemed to have beensupplied in Kenya:
• Where the supplier has a fixed physical establishment/businessin Kenya and the services are physically used or consumed inKenya;
Export of services
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Section 7 – Export of services
PwCSeptember 2013
VAT Act 2013
Section 8(1) provides that a supply of services is made in Kenya ifthe place of business of the supplier from which the services aresupplied is in Kenya.
The definition of ‘service exported out of Kenya’ means a serviceprovided for use or consumption outside Kenya.
Implication
The VAT Act 2013 has provided for clarity in respect of‘consumption’ of an export of service based on the destinationprinciple.
Export of services
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Section 7 – Export of services
Non-resident
PwCSeptember 2013
Deduction of input tax
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PwCSeptember 2013
Section 8 – Deduction of input tax
Repealed VAT Act
• S. 10 defines “input tax” and“output tax”.
• S. 11 sets out thedocumentation required tosupport input tax deduction.
VAT Act 2013
• The definition of input taxand output tax have rightlybeen moved to theinterpretation section of theAct (S. 2).
• Clearly sets out thedocumentation required tosupport input tax deduction.This includes an original taxinvoice. However, it alsoallows suppliers to issue aclearly marked copy to aperson who has lost theoriginal.
Deduction of input tax
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PwCSeptember 2013
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Section 8 – Deduction of input tax
Items Restricted underrepealed Act
Restricted under VATAct 2013
Passenger cars and minibuses,bodies, parts, oils and services fortheir repair;
√ √
Furniture, fittings andornaments of decorative items;
√
Household or domesticelectrical appliances; and
√
Entertainment, Restaurant andAccommodation services.
√ √restricted if not forbusiness
Blocked Items
PwCSeptember 2013
Partial exemption
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PwCSeptember 2013
• Method 1
- Taxable supplies x Total Input VAT = Deductible Input Tax
Total supplies
• Method 2
- Deduct all input tax directly attributable to taxable supplies;
- No deduction for input tax attributable to exempt supplies;
- Remainder of taxable supplies use method 1 above;
Where input tax attributable to exempt supplies is less than5% of total input tax, all input tax can be deducted.
Deductibility of Input tax for persons who are partiallyexempt – under the repealed Act
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Section 9 – Partial exemption
PwCSeptember 2013
• Input tax relating to taxable supplies is deductible infull.
• Input tax relating to other use is not deductible.
• Input tax relating to making of partly taxable suppliesand partly other uses is:
- deductible in full, if taxable supplies are morethan 90% of the total supplies
- not deductible, if taxable supplies are less than10% of the total supplies
Deductibility of Input tax for persons who partly maketaxable supplies and partly for another use under theVAT Act 2013
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Section 9 – Partial exemption
PwCSeptember 2013
• The amount of input tax to be deduced is determined by the formula below:
Value of all taxable supplies X Total input tax
Total supplies made
• The amount of input tax to be deducted is determined by theformula below:
Value of all taxable supplies X Input tax
Value of Total supplies made
…Deductibility of input tax 0n composite transactions
36Seminar • VAT Act 2013
Section 9 – Partial exemption
TaxableSupplies %
OtherSupplies %
Input VATclaimable
100 0 Claim fully
>90 <10 Claim fully
11-89 11-89 Apportion
<10 >90 None
PwCSeptember 2013
Revised time limits
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PwCSeptember 2013
Repealed Act VAT Act 2013
Time limit for issuance ofcredit notes is 12 monthsafter the issue of the relevanttax invoice.
Time limit for issuance ofcredit notes is reduced to 6months.
Deduction of input taxallowed up to 12 months afterwhich that input tax becamedue and payable.
Deduction of input taxallowed within 6 months afterthe end of the tax period inwhich the supply orimportation occurred.
Revised time limits for issuance of Credit Notes anddeduction of Input Tax
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Section 10 – Revised time limits
PwCSeptember 2013
Refund of tax
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PwCSeptember 2013
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Section 11 – Refund of tax
Repealed VAT Act
• Refund of VAT whereinput tax exceeds outputtax as a result of makingzero-rated supplies.
• Application of Refundclaims must be lodgedwithin 12 months of thedate the tax becamepayable.
VAT Act 2013
• Refund of VAT whereinput tax exceeds outputtax as a result of makingzero-rated supplies.
• No time limits withinwhich the refund wouldbe paid
Refund of tax
PwCSeptember 2013
VAT Remission
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PwCSeptember 2013
Section 12 – VAT Remission
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• VAT Remission is abolished!
• Remission already granted under therepealed Act shall continue toremain in force for a period of 5years.
• Companies likely to be affected:
- who purchase equipment not underchapter 84 and 85;
- are in the hotel constructionbusiness; and
- in the oil exploration business
- who applied for TREO
VAT Remission
PwCSeptember 2013
Registration and Deregistration
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PwCSeptember 2013
Section 13 – Registration and Deregistration
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Repealed VAT Act VAT Act 2013
Sixth ScheduleParagraph 1
Registrationrequired forpersons makingtaxable suppliesover KShs. 5million or more in aperiod of 12months
34 (1)& (2)
Threshold maintained.However, in determining thethreshold it excludes• the sale of capital assets and• sale of a person’s enterprise
or• cessation of business
permanently.
Sixth ScheduleParagraph 5,6, 7 , 8 & 9
Effectiveregistration date
34 (5),(7) &(8)
Simplification on registrationdates i.e as specified in theperson’s registrationcertificate.
Sixth ScheduleParagraph 13& 14
Group registration 34 (9) The Cabinet Secretary may inregulation, provide forregistration of a group ofcompanies
Registration and Deregistration
PwCSeptember 2013
Section 13 – Registration and Deregistration
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Repealed VAT Act VAT Act 2013
SixthScheduleParagraph 19
• Threshold KES 5m
• Notification of changeof business detailswithin 14 days
35 (2) • Threshold KES 5m (Ataxable supply of acapital asset and ataxable supply madesolely as a consequenceof the person selling thewhole or part of thepersons business , willbe excluded
• Period for notificationfor change of businessdetails extended to 21days .
SixthScheduleParagraph 10(2), 11, 12
Different penalties forvarying offences
37 Default penalty notexceeding KES 200,000applicable for all offences
Registration and Deregistration
PwCSeptember 2013
Application of InformationTechnology
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PwCSeptember 2013
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Section 14 – Application of Information Technology
• Application for registration;
• Return/statement required by the Act;
• Any payment or repayment;
• Any notice/document required to be issued by theCommissioner; and
• Any other thing required to be done under the Act.
Information technology to be used for the following:
PwCSeptember 2013
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Section 14 – Application of Information Technology
Powers given to theCommissioner to establish andoperate:
• a procedure for electronicfiling of tax returns or otherdocuments by registeredpersons;
• electronic service of noticesand other documents; and
• provide written conditions forelectronic returns and notices.
Application of Information Technology
iTax
PwCSeptember 2013
Objections
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Section 15 – Objections
Repealed VAT Act
• No time limit withinwhich the Commissionerwas to respond to theobjections of assessmentssubmitted by tax payers.
VAT Act 2013
The Commissioner to:
• respond within 30 days after he hasreceived the notice of objection.
• to send out a notice within 15 dayssetting out an amendment orconfirming the assessment.
• Where the Commissioner fails tocommunicate within 60 days, heshall be deemed to have agreed toamend the assessment inaccordance with the objection.
Objections
50Seminar • VAT Act 2013
PwCSeptember 2013
Appeals
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PwCSeptember 2013
• VAT appeals provisions excluded from the VAT Act2013 in light of the Tax Appeals Tribunal Bill 2013.
• However, transitional clauses provide for subsidiarylegislation to remain in force until new subsidiarylegislation is enacted.
Implications
• Any notifications to appeal to the Tribunal can still beeffected.
Appeals
52Seminar • VAT Act 2013
Section 16 – Appeals
PwCSeptember 2013
Tax avoidance schemes
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PwCSeptember 2013
Repealed Act
Non-existent in the repealed Act.
VAT Act 2013
• A scheme is entered into when a person obtains a taxbenefit.
• Where a scheme is entered into, the Commissionershall make an adjustment and issue an assessment ofany tax liability.
Tax avoidance schemes
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Section 17 – Tax avoidance schemes
PwCSeptember 2013
Enforcement
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PwCSeptember 2013
• Commissioner may require the production of recordsand information in respect of tax liability in order toascertain the correctness of the tax declared by the taxpayer.
• Audit to be concluded within 6 months, however, KRAcan request for extension in writing.
• Where audit is not concluded within 6 months, aregistered person can be issued with an interimcertificate indicating the progress of the audit.
Enforcement
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Section 18 – Enforcement
PwCSeptember 2013
Public/private rulings
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PwCSeptember 2013
Repealed VAT Act
KRA would issue non-binding
• Information Letters;
• Public notices; and
• Technical circulars.
VAT Act 2013
The Commissioner is requiredto make public notices to appearin at least 2 daily newspapersspecifying;
• Subject matter;
• ID number of subject matter;and
• Effective date of ruling.
Withdrawal of publicnotice to be published innewspapers.
Public ruling
58Seminar • VAT Act 2013
Section 19 – Public/private rulings
PwCSeptember 2013
Repealed VAT Act
Specific rulings were issued tothe tax payer in respect of atechnical issue.
VAT Act 2013
Commissioner to issue privateruling upon application of theregistered person.
Private ruling
59Seminar • VAT Act 2013
Section 19 – Public/private rulings
PwCSeptember 2013
Transitional clauses
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PwCSeptember 2013
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Section 20 – Transitional clauses
• The clauses under the repealed Actshall still remain in force for purposesof:
the assessment and collection of anytax or recovery of penalty;
subsidiary legislation consistentwith the VAT Act 2013;
remission already granted for thenext five years;
tax due to be paid or refunded, butwas not so paid or refunded; it shallbe paid or refunded as though itwere a sum due under the currentregime.
Transitional clauses
PwCSeptember 2013
Implications on Consumer, Industryand Product Sector (CIPS) andServices Sector
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PwCSeptember 2013
• All plant, machinery, electrical and
mechanical appliances under chapters 84 and
85 of the East African Community Common
External Tariff (CET) including generators,
refrigerators, computer hardware, processors
and monitors, most of which were zero rated
have become exempt.
• Registered persons who sell the above as stock
in trade may de-register from VAT as their
supplies shall now be exempt.
• Cost of such appliances might be more
expensive to buy as the manufacturer could
pass the VAT burden to the consumer.
Manufacturing
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Section 21 – Implications on Consumer, Industry and Product Sector (CIPS) and Services Sector
VATRemissions
Productsmoreexpensive?
PwCSeptember 2013
• Tour operation and travelagency services includingtravel, hotel, holiday and othersupplies made to travellerswhich was exempt in therepealed VAT Act now taxableat 16%.
• Services provided by hotelestablishments to foreign traveland tourism promotersundertaking a tour in thepromotion of tourism in Kenyawhich was zero rated, nowtaxable at 16%.
• Transportation of tourists by anymeans of conveyance which wasexempt now taxable at 16%
• Zero rating of materials andequipment onconstruction/refurbishment ofhotels abolished
Hospitality
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Section 21 – Implications on Consumer, Industry and Product Sector (CIPS) and Services Sector
PwCSeptember 2013
What does this mean?
65
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PwCSeptember 2013
• No Remission
• Impact on PartialExemption
• Importation ofservices
• VAT status change
• No TREO
What this means
66Seminar • VAT Act 2013
Section 22 – What does this mean?
PwCSeptember 2013
Change of VAT status
67
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PwCSeptember 2013
The Act has significantly reduced the number of exemptand zero rated supplies. All other supplies are nowtaxable at the standard rate of 16% except items listed inthe First and Second Schedule.
Reduction in zero rated and exemptsupplies…
68Seminar • VAT Act 2013
Section 23 – Change of VAT status
16%
Exempt
0%
16% Exempt 0%
A
VAT 2013 Act
Rep
eale
dV
AT
Act
None
C None
VAT Status Changes
No change in statusNONE NONE
X No change in status NONE
X X No change in status
PwCSeptember 2013
• Credit rating bureau services
• Management of a unit trust or collective investment scheme
• Sale of commercial building
• Services rendered by trade, professional and labour associations
• Postal services
• Tour operations and travel agency services
• Landing and parking services provided for aircrafts
Some examples of services moving from Exempt to 16%
Section 23 – Change of VAT status
Seminar • VAT Act 201370
PwCSeptember 2013
• Flour (rice, rye, groats and meal of wheat/maize, potatoes, driedleguminous vegetables)
• Cut flowers and flower buds
• Rocket launchers/Artillery/military weapons
Some examples of goods moving from Exempt to 16%
Section 23 – Change of VAT status
Seminar • VAT Act 201371
PwCSeptember 2013
• Electricity supply of electrical energy to domestic householdsbelow 200 KW
• Transport services for unprocessed agricultural/ agro forestproduce
• construction services in relation to grain silos
Some examples of services moving from Zero rated to16%
Section 23 – Change of VAT status
Seminar • VAT Act 201372
PwCSeptember 2013
• Goods used by the President
• Goods for the official use of the Armed Forces
• Residues and waste from the food industries; prepared animal
• Milk
• Newspapers and books
• Solar equipment and accessories
• Agricultural tractors
Some examples of goods moving from Zero rated to 16%
Section 23 – Change of VAT status
Seminar • VAT Act 201373
PwCSeptember 2013
• Milk specially prepared for infants
• Ordinary, gluten and unleavened bread.
• Wheat Flour
• Maize flour
• Cereal (except wheat, rye and barley seeds )
• Organic chemicals
• Pharmaceutical products
• Fertilizer
• Sanitary towels (pads) and tampons.
Some examples of goods moving from Zero rated toExempt
Section 23 – Change of VAT status
Seminar • VAT Act 201374
PwCSeptember 2013
LPG now VAT able... Other petroleum products intransition
Section 23 – Change of VAT status
Seminar • VAT Act 201375
Zero rated goods now exempt intransition to 16%
Transitioning from exempt to 16%
Kerosene type jet fuelPetroleum oils and oils obtainedfrom bituminous minerals, crude.
Illuminating kerosene Motor spirit (gasoline) regularPurchase of Jet fuel and aviationspiritby jet owners Motor spirit (gasoline), premium
Aviation spirit
Spirit type jet fuelSpecial boiling point spirit and whitespirit
Other light oils and preparationsOther medium petroleum oils andpreparations
PwCSeptember 2013
An example:
Are phones and computer software taxable @ 16% or still exemptas phones are under chapter 85
Chapter 84, 85 – Interpretation
What is Plant and machinery
76Seminar • VAT Act 2013
Section 23 – Change of VAT status
PwCSeptember 2013
Questions & answers
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Seminar • VAT Act 2013