Suppliers get relief in new tax guidelines

Kenya Revenue Authority has finally published guidelines that will allow suppliers to enjoy exemptions from withholding value added tax (WHVAT).

The proposal to implement the exemption was made by Treasury in the Finance Act 2017.

KRA says suppliers who can prove that withholding of their VAT by the businesses they supply to keeps them in a continuous credit position for a period of not less than 24 months can now apply to be exempt from the tax.

The exemptions are contained in section 42A of the Tax Procedures Act.

“Any Kenyan suppliers who can demonstrate that they have been in a continuous credit position for a period of not less than 24 months and also prior to that is invited to apply for the exemption,” KRA says in the guidelines.

“The commissioner shall then evaluate the reasons thereof, and confirm that they meet the conditions for exemption and communicate his decision to the supplier. Where the commissioner approves the application, an exemption letter will be issued to the supplier.

“The withholding agents will cease withholding of VAT from payments made to the suppliers upon presentation of the letter,” says the taxman.

KRA also explained that the suppliers could lose the right to exemption from WHVAT if the Commissioner-General John Njiraini has reason to believe that the exemption was based on inaccurate information, or that the supplier defaulted to account for VAT for any tax period subsequent to the exemption.

“Also where the supplier ceases to be in a credit position upon expiry of the first 24 months from the date of exemption, the supplier shall inform the commissioner immediately,” the guidelines read.

Grow business

Mbiki Kamanjira, a manager at tax advisory firm Grant Thornton, said the suppliers, especially those at small-scale level, will now get a reprieve and their businesses can grow.

“Previously, when a supplier delivered goods to a certain company, that firm acted as a withholding tax agent for KRA and deducted VAT from the payments of that supplier and sent it to KRA,” he said.

“However, with this exemption, these companies will no longer be KRA withholding tax agents, and will pay the suppliers fully.”