Kenya Revenue Authority (KRA) has identified a scheme that a number of Kenyan businesses are using to evade taxes.
In a notice on February 9, the taxman noted that there was an emerging practice where some trade agents including customs clearing agents were erroneously claiming input Value Added Tax (VAT) in relation to supplies made to their principals.
"Any input VAT deducted by trade agents, including customs clearing agents, contrary to the VAT Act and the guidance provided in this notice shall be disallowed and applicable penalties imposed," the agency noted.
Section 63 of the VAT Act, 2013 states that a person convicted of an offense shall be liable to a fine not exceeding Ksh1 Million.
The VAT Act, 2013 read together with The VAT (Electronic Tax Invoice) Regulations, 2020 requires a registered person who makes a taxable supply to furnish the purchaser with a tax invoice at the time of supply.
Every Tax Invoice should be issued in the name and PIN of the supplier and purchaser.
Therefore, in a tripartite transaction (involving the supplier, trade agent, and the principal purchaser) where an agent transacts on behalf of a purchaser or consignee, the supplier should invoice the purchaser or consignee for the supplies made to them and not the clearing or trade agent.
The purchaser or consignee is the party entitled to deduct input VAT in relation to such a supply.
The purchaser or Consignee should only deduct input tax where they have in their possession the documents required under Section 17(3) of the VAT Act, 2013.
"All registered taxpayers who engage in this kind of trading arrangements are advised to observe these
guidelines and the VAT Act when invoicing for supplies made under tripartite transactions,"
In January 2021, KRA surpassed its collection target for the second month in a row recovering Ksh142 Billion against a target of Ksh138 billion, which translated to 6.7 percent growth.
The Value Added Tax (VAT) domestic remittances grew by 8.5 percent. This was a significant improvement after a decline of 19.8 percent achieved in December 2020.
