Kenya: VAT proposals concerning online transactions, digital marketplaces in finance bill

Proposals regarding VAT and other indirect tax measures in Finance Bill, 2022

Proposals regarding VAT and other indirect tax measures in Finance Bill, 2022

The Finance Bill, 2022, as tabled before the National Assembly on 12 April 2022, includes proposals regarding value added tax (VAT) and other indirect tax measures.

One key proposal would provide an exemption from VAT and excise (duty) tax on parts used in manufacturing passenger vehicles, as well as the supply of locally assembled passenger vehicles, provided certain requirements are met. In addition, the bill proposes to exempt from VAT plant and machinery used by pharmaceutical entities.

The bill also proposes the following changes regarding online transactions subject to VAT.

  • To amend the definition of a digital marketplace for VAT purposes, by replacing the term “sell or provide services, goods or other property” with “sell goods or provide services”
  • To amend the VAT law by including a provision that exempts services provided via the internet or an electronic network or through a digital marketplace from “reverse VAT”
  • To amend the VAT law by excluding persons supplying imported digital services via the internet or an electronic network or through a digital marketplace from meeting the KES 5 million VAT registration threshold

Thus, the proposed amendment clarifies what constitutes a “digital marketplace” for VAT purposes and also reflects that all suppliers of imported digital services would now be required to register for the digital services VAT obligation, regardless of the value of the supply made in Kenya.

Under the current digital services VAT regulations, businesses importing services under a business-to-business (B2B) model are required to notify the person supplying imported digital services that they will account for reverse VAT on such supplies. With the proposed removal of the requirement to account for reverse VAT on imported digital services, the notification requirement by resident businesses to the non-resident suppliers of digital services would no longer be necessary.

Other indirect tax proposals in the bill would:

  • Clarify that input VAT would only be claimable by a registered person if the input VAT were declared in a return for the period
  • Clarify the applicable penalties and interest on VAT on imported goods that are subject to customs control
  • Reclassify certain goods relating to hospitals, and move the goods from the classification of VAT-exempt status and to the standard VAT rate of 16% while also exempting from VAT certain medical items
  • Clarify the tax status of certain flours as zero-rated
  • Aim to protect consumers from price increases due to annual inflation adjustments on excise tax of specific products

Read an April 2022 report [PDF 1.9 MB] prepared by the KPMG member firm in Kenya

 

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