VALUE ADDED TAX (CAP 476)

• Value Added Tax is charged on supply of taxable goods or services made or provided in Kenya and
on importation of taxable goods or services into Kenya.
• This is a tax on spending which is collected by business as agents of the government and passed on
to the government.
• VAT is a development from sales tax that was abolished in 1989 and reintroduced in 2007 as
turnover tax. VAT is applicable to goods and services mainly in the business area. It is payable
where taxable goods or services are supplied in Kenya by taxable persons and in the course of
furtherance of business of that person.
• VAT is a multistage tax that is deducted at every stage of handling goods or services and passed on
to the government. The basic laws governing VAT are contained in CAP 476.
How VAT Works
• Once you are registered you will be required to charge, collect and account for VAT on your taxable
supplies and remit the tax to the Commissioner of VAT. As a registered person you are also legally
bound to submit monthly returns (VAT 3's) with details of tax on goods and services charged to your
customers (output tax) and tax on goods and services charged by your suppliers (input tax).
• Whenever you make a taxable supply, the supply is your output and the tax you charge is your
output tax. If you purchase taxable supplies for furtherance of your business the supply is your input
and the tax you pay is your input tax.
• You should subtract the input tax attributable to taxable supplies from your output tax and pay
the difference to the Commissioner of VAT. If your input tax is greater than your output tax
you should carry forward the difference as a credit to your next VAT return.

REGISTRATION
• Compulsory registration applies to any person who in the course of his business has supplied
taxable goods or taxable services or expects to supply taxable goods or taxable services or both, the
value of which is Shs 5 Million or more in a period of 12 months or
• Any person who meets the above condition is a taxable person and should within 30 days of
becoming a taxable person apply for registration.
• Voluntary registration is permissible under the law but it is granted at the discretion
of the commissioner.

DE-REGISTRATION.
If the value of taxable turnover does not exceed Shs. 5 million in any period of 12 months a registered
person may apply for de-registration and will be subject to turnover tax under the ITA upon notifying
the commissioner.

CHANGES AFFECTING REGISTRATION

A registered person shall notify details to the commissioner within 14 days of any of the following
changes.
• Change of address of the place of business.
 • Additional premises to be used for the purpose of the business.
• Premises previously used for the business but which are no longer used for the
business.
• Change of business or trading name.
• When an interest of more than 30% of the share capital of a limited company has been acquired
by another person or group of persons.
• When the person authorized to sign returns is
changed. When the partners in a partnership are
changed.
• When a change occurs in the trade classification of the goods or services supplied (exempt,
zero rated, standard etc)

SALE OF A BUSINESS AS A GOINGS CONCERN (DISPOSAL OF A REGISTERED

BUSINESS)
Where any person disposes of a registered business as a going concern to another registered person, both
registered person shall within 30 days provide the commissioner with details of; The transaction

The arrangements made for the payment of tax due on supplies already made.
The description, quantities and value of assets and stocks of taxable goods in hand at the date of
disposal. The arrangements made for transferring the responsibility for keeping and producing books
and records relating to the business before disposal.

RIGHTS OF A REGISTERED PERSON

Under the VAT Act a registered person has the following rights.
• A right to deduct VAT on taxable supplies
• Right to get a refund if his input tax always exceeds his output tax.
• A right of free access to the commissioner and any other senior officer of the VAT department, If
the trader has a genuine complaint.
• Right to get a relief for stock in trade as at the time of registration (Right to make inventory claim).
Right to get a relief or refund on capital goods including buildings acquired within 12 months prior
• to the date of registration.
• A right to get a refund for bad debts.
• The right to defer payment of VAT to a date not later than the 20th of the month following the month
of supply.
• Right to appeal to the VAT tribunal.
• Right to demand that every authorized officer of the VAT department to identify
himself/herself before gaining access to the business premises.
• A right to expect that the information obtained in the course of duty by the VAT officers shall
be treated in confidence.

DUTIES OF A REGISTERED PERSON

o To apply for registration as a taxable person when the turnover levels deem fit.
Charge VAT on all taxable supplies of goods and services.
o To pay on a monthly basis tax due to the VAT department. To
keep records and books.
o To provide the VAT officer with any information pertaining to the business that they may
require. To give access to the VAT officers to the business premises whenever required to do so
o To pay the VAT due on or before the 20th day of the month following the month of supply. To pay
tax to the registered suppliers (input tax).

SUPPLY OF GOODS AND SERVICES

The expression “supply” includes,
• The sale, supply or delivery of taxable goods to another person.
• The sale or provisions of taxable goods or services by a registered person for his own use outside the
business.
• The appropriation of taxable goods or services by a registered person for his own use outside the
business.
• The making of gift of any taxable goods or taxable services.
• The letting of taxable goods on hire, leasing or other transfers.
• The provision of taxable services by a contractor to himself in constructing a building and
related civil engineering works for his own use, for sale or for renting to other persons.
• The appropriation of taxable goods by a registered person for use in the business where, if
supplied by another person the tax charged on the supply would have been deducted as input tax.
• Any other disposal of taxable goods or provisions of taxable services.

TIME OF SUPPLY / TAX POINT

a) VAT becomes due and payable at the time when;
 Goods or services are supplied to the purchaser
 An invoice is issued in respect of the supply
 Payment is received for all or part of the supply
 A certificate is issued by an architect, surveyor or any person acting as consultant or in a
supervisory capacity in respect of the service (whichever is earliest)

b) VAT on Imported Services

VAT on imported services may also be referred to as Reverse VAT.
Any importer of an imported service irrespective of his VAT registration status is liable
to pay VAT on the imported service (Reverse VAT).
The importer therefore must register for a KRA PIN to be able to generate an e-slip (payment
slip) used in paying the tax to the KRA appointed banks.in order to access KRA’s iTax
platform for payment purposes.
VAT on imported services is due and payable at the time
when:
o The taxable service is received
o An invoice is received in respect of the service
o Payment is made for all or part of the service (whichever is earliest)

c) For supplies made on a continuous basis or a metered supply, tax becomes charged at the time
of each determination of the meter reading.

VALUE OF SUPPLY
The charge for VAT is determined by the value attributable to the supply of goods or services.
The general rule for determining the value of the supply is as follows:
1. Where a supplier and a buyer are independent of each other and dealing at arm’s length; the
value for VAT is the price for which the supply is provided
2. Where the supplier and the buyer are not independent of each other, the taxable value of the
supply is the price at which the supply would have been provided in the ordinary course of
business to an independent person dealing at arm’s length.
3. Where taxable goods are supplied in returnable containers then no tax will be chargeable in
respect of the containers.
4. For taxable goods imported into Kenya, the taxable value is the value for duty (whether duty is
payable or not) plus the duty (whether or not a remission of the duty has been issued).

(CIF + Customs Duty)

5. The taxable value of in respect of imported services is the price charged for the supply.
a. A taxable person who is a retailer and mainly supplies taxable goods is required to
quote or label a price that is inclusive of VAT.

VAT = value inclusive of VAT X rate of VAT = Value inclusive of VAT X 16%
100% + Rate of VAT 116%
VAT = Value exclusive of VAT X rate of VAT Value exclusive of VAT X 16%
=

6. Where goods or services to unregistered persons are required to quote or label a price that is
inclusive of VAT.
7. Where goods are purchased under hire purchase terms, the consideration for the supply will
represent the cash price which is the value for VAT and the interest / Finance charge will be
disregarded in determining the value for VAT.

Place of Supply
This is the location of the goods when they are allocated to the customer’s orders.

If the goods are located outside Kenya, when being allocated to a customer’s order, the supply
is deemed to have taken place outside Kenya and thus outside the scope of VAT.

VAT Rates
There are 2 types of tax rates;
1. 0% - for Zero rated supplies. Goods listed in the 2nd Schedule to the VAT Act e.g.
Exportation of goods/services, goods supplied to EPZ, Priviledged persons and Public
bodies etc.
2. 16% - General rate for other Goods and Services

TYPES OF SUPPLIES

1. EXEMPT SUPPLIES
These are business transaction on which VAT is not chargeable. They are not taxable supplies. The
value of exempt supplies will be disregarded in determining the taxable turnover and the need to
register for VAT.
The input tax incurred with respect to exempt supplies is neither deductible nor allowable to be
carried forward nor claimable from the commissioner.
If a person is running a business which relates to exempt supplies only, then the person cannot charge
VAT (output tax) so as to offset any input tax that he may have paid in the course of his business.

Examples of exempt services

1. The financial services
2. Insurance and reinsurance services excluding the following—
a) management and related insurance consultancy services.
b) actuarial services;
c) services of insurance assessors and loss adjusters.
3. The supply of education services
4. Medical, veterinary, dental and nursing services.
5. Agricultural, animal husbandry and horticultural services.
6. Burial and cremation services.
7. Transportation of passengers by any means of conveyance excluding international air
transport or where the means of conveyance is hired or chartered.
8. Supply by way of sale, renting, leasing, hiring, letting of land or residential premises;
9. Community, social and welfare services provided by National Government, County
Government or any political sub-division thereof.
10. Insurance agency, insurance brokerage, securities brokerage services and tea
and coffee brokerage services.
11. The supply of services rendered by educational, political, religious, welfare and other
philanthropic associations to their members,
12. social welfare services provided by charitable organizations registered
13. The following entertainment service e.g. stage plays and performances which are conducted
by educational institutions, sports, games or cultural performances
14. Accommodation and restaurant services provided within the following premises
by the proprietors thereof establishments operated by:
a) establishments operated by an educational training institutions for the use of the staff
and students,
b) establishments operated by medical institution for the use by the staff and patients
c) canteens and cafeterias operated by an employer for the benefit of his employees
15. Conference services conducted for educational institutions as part of learning
16. Car park services provided by National Government, County Government and by an
employer to his employees on the premises of the employer.
17. The supply of airtime by any person other than by a provider of cellular mobile
telephone services or wireless telephone services
18. Betting, gaming and lotteries services.
19. Hiring, leasing and chartering of aircrafts
20. Taxable services for direct and exclusive use in the implementation of official aid
funded projects
21. Services imported or procured locally for use by the local film producers or local film agents
 22. Supply of sewerage' services by the national government, a county government
23. Entry fees into the national parks and national reserves.
24. The services of tour operators, excluding in-house supplies
Examples of Exempt Goods
 Fruits whether dried or not.
 Milk and cream
 Birds’ eggs whether in shell or not.
 Fish and other animal’s products.
 Vegetables, e.g. onions, mushrooms, spinach etc. Grains e.g. maize, rice, millet, sorghum etc.
 Wooden coffins
 Used postage, revenue or similar stamp.
 Rocket launchers and other military weapons.
 Water (piped).

2. ZERO-RATED SUPPLIES
These are business transactions on which VAT is charged at the rate of zero percentage. Although,
no tax is payable on such items they are treated as taxable supplies in all respects.
If a person deals in zero rated supplies and he is required to pay any input tax he can claim a refund
for this tax since he will be registered for VAT purposes.

Examples of Zero-Rated Supplies

1 The exportation of goods or taxable services.
2 The supply of goods or taxable services to an export processing zone
3 Shipstores supplied to international sea or air carriers on international voyage or flight.
4 The supply of coffee and tea for export to coffee or tea auction centers.
5 Transportation of passengers by air carriers on international flight.
6 The supply of taxable services to international sea or air carriers on international voyage or
flight.
7 Goods purchased from duty free shops by passengers departing to places outside Kenya.
8 Supply of taxable services in respect of goods in transit.
9 Inputs or raw materials (either produced locally or imported) supplied to
pharmaceutical manufacturers in Kenya
10 The supply of goods or taxable services to a special economic zone enterprise.
11 The supply of liquefied petroleum gas
12 The supply of ordinary bread
13 All inputs and raw materials whether produced locally or imported, supplied to manufacturers of
agricultural pest control products
14 Inputs or raw materials for electric accumulators and separators
15 Agricultural pest control products

Differences Between Zero-Rated & Exempt Supplies

Registration for VAT is required for traders dealing in zero-rated supplies whereas no such registration
is required for traders dealing in exempt supplies.
The input tax is deductible on zero-rated supplies while it is not deductible on exempt supplies.
Zero-rated supplies are taxable whereas exempt supplies are not.

3. TAXABLE SUPPLIES (standard rated)

These are supply of goods or services on which VAT is chargeable either at the specified or high rates.
In most cases all the input tax in respect of taxable supplies may be deductible

Taxable Services
•• Accountancy services including any type of audit, book keeping or similar services.
• The provision of reports, advice, information or similar technical services in the following area;
i. Management and consultancy services.
ii. Recruitment staffing and training.
iii. Marketing research.
• Computer Services of any descriptions including the provision of bureau services, systems analysis
and design software development and training but excluding training provided to students in the
furtherance of education and which is not part of a user-training or any other business training.
• Legal and arbitration services including services supplied in connection there with.
• Services provided by consulting engineers, auctioneers and estate agents.
• Services provided by security and investigation organizations.

Restriction of Input Claim

Where a person deals with all the supplies i.e. Taxable (standard rated and zero-rated) plus exempt
supplies, there will be need to determine to what extent input tax can be deducted. The deductible
input tax for which a registered person can make a deduction shall be;

a) The whole of the input tax if all the supplies are taxable.
b) Such part of the input tax that can be attributed to taxable supplies; (taxable plus zero-rated), where
only a proportion of the supplies are taxable. Input tax is deductible only where there’s a related or
attributable output tax. Thus there is no output tax for exempt supplies hence no deduction of input
tax on exempt supplies.

Zero rated supplies are taxable but the output tax is zero and therefore there is a related output tax, hence
the input tax on the zero rated supplies is deducted. For exempt supplies, these are not taxable supplies
and there is no output tax, therefore non-of the input tax on exempt supplies is deductible. Where a
person makes all types of supplies, the deductible input tax shall be limited to the proportion of output
tax that bears on the taxable supplies. A person can claim all the input tax provided the input tax that
relates to exempt supplies is always less than 5% of the total input tax.

For a person making all types of supplies, he will determine the deductible input tax by any of
the following formula:

Deductible input tax = Value of taxable supplies X total input tax

Value of total supplies

Note: The supplies quoted in the formula above represent sales figures net of VAT if any.

VAT RECORDS
The vat act requires the following records to be kept and produced to an authorized officer on demand –
a) Copies of all invoices issued in serial number order;
b) Copies of all credit and debit notes issued, in chronological order;
c) all purchase invoices, copies of customs entries, receipts for the payment of customs duty
or tax, and credit and debit notes received, to be filed chronologically either by date of
receipt or under each supplier's name;
d) Details of the amounts of tax charged on each supply made or received;
e) a VAT account showing the totals of the output tax and the input tax in each period and a
net total of the tax payable or the excess tax carried forward, as the case may be, at the end
of each period;
f) Details of goods manufactured and delivered from the factory of the taxable person;
g) Copies of all stock records kept periodically as the Commissioner may determine.
h) Details of each supply of goods and services from the business premises, unless such
details are available at the time of supply on invoices issued at, or before, that time.
i) such other accounts or records as may be specified, in writing, by the Commissioner.

TAX INVOICE
A registered person who makes a taxable supply shall, in respect of that supply, furnish the
purchaser with a tax invoice either at the time of the supply or immediately upon the payment
for the supply.

Details of a tax invoice

The tax invoice shall include the following information -
a) the name, address, and personal identification number of the person making the supply;
b) the serial number of the invoice;
c) the date of the invoice;
d) the date of the supply, if different from that given above;
e) the name, address, if any, and Personal Identification Number of the person to whom the supply
was made, if known to the supplier;
f) the description, quantity and price of the goods or services being supplied;
g) the taxable value of the goods or services, if different from the price charged;
h) the rate and amount of tax charged on each of those goods and services;
i) details of whether the supply is a cash or credit sale and details of cash or other discounts, if any,
that apply to the supply;
j) the total value of the supply and the total amount of VAT charged;
k) the logo of the business of the person issuing the invoice; and
l) the identification number of the register.

The simplified tax invoice

Where cash sales are made from retail premises, furnish the purchaser with a simplified tax
invoice containing the following details
a) the name, address and personal identification number of the user of the
b) register;
c) the logo and identification number of the register;
d) the serial number of the receipt;
e) the date and time of issue of the receipt;
 f) the name, quantity, unit price, unit name, chargeable tax rate and the value of
the recorded sale of goods or services;
g) the tax amount payable; and
h) the total amount payable inclusive.

REFUND OF VAT
The VAT Act provides for taxpayers to claim refunds for different reasons.
1. Inventory claim: - The Act allows you to deduct tax paid on stocks, assets and buildings or civil
works upon registration provided that such buildings or civil works are constructed or such goods or
assets are purchased within twelve (12) months prior to registration or within twenty-four (24)
months as the Commissioner may allow. However, declaration of such tax must be made within 30
days from the date of registration in a form-VAT 5 for the Commissioner's approval. Any input tax
incurred prior to registration should not be deducted in the VAT 3 return until the letter of approval
from the Commissioner is received.
2. When you make zero-rated supplies you incur input tax but you have no output tax to offset the
same from. The law however allows you to claim refund of the excess input tax from the
Commissioner.
3. When you spend on capital investments in furtherance of your taxable business you accumulate
input tax in excess of output tax. The Law allows you to claim from the Commissioner for payment
of the amount where input tax deducted exceeds one million shillings (Kshs 1,000,000/=) provided
that the investments are used in making taxable supplies.
4. Exports of all goods and taxable services are Zero Rated. Therefore, both registered and non-
registered exporters are allowed by the law to claim refund of input tax incurred in the cause of
making such supplies.
5. Tax paid in error: - Sometimes you may pay tax in error due to various reasons e.g. use of wrong tax
rate, over-declaration, and miscalculation among others. There are also cases where you are entitled
to remission (or Zero rating) but cannot produce documentary proof of the same at the time of
purchase or importation, and are charged tax but you obtain the documents later. Tax paid in such
circumstances is refundable if claimed by the person who paid it.
6. Bad debts:-If you charge tax on a supply and pay it to the Commissioner but your customer fails to
pay you, you may claim the tax from the Commissioner, after a period of three years or immediately
after that person becomes legally insolvent. However, any claim on bad debts should be made within
five (5) years.
7. You are also entitled to a refund of tax that has been paid on goods where in the opinion of the
Minister, it is in the public interest to remit the same.
NB: -All refund claims other than the inventory claim is made through a form-VAT 4

Bad debt relief

An application for refund of VAT in respect of bad debts must be made within 5 years from the date
of supply and be accompanied with the following;
• A document issued by the person with whom he proves the insolvency of the debtors.
A copy of the tax invoice in respect of each supply upon which the claim is based.
• Evidence that every effort has been made to recover the amount owed.
• A declaration that the seller and the buyer are independent of each other.
• For a claim in respect of bad debts to be valid, a period of 3 years must have elapsed from the date
of supply or the buyer has become legally insolvent.

REMISSION OF VAT
The Minister for Finance may by order in the Gazette remit wholly or partly tax payable in respect
of any taxable supply or class of taxable supplies if he is satisfied that it is in the interest of the
public to do so.
Remission can be granted to and in respect of:
a) capital goods (excluding motor vehicles) imported or purchased for investment;
b) such other goods, including motor vehicles and computers, donated or purchased for donation by
any person to non-profit making organization or institutions approved by the Government, for
their official use or for free distribution to the poor and needy persons, or for use in medical
treatment, educational, religious or rehabilitation work or other Government approved projects;
c) Any company granted oil exploration or oil prospecting license in accordance with provisions
of the Petroleum Exploration and Production Act;
d) Manufacturers of goods in licensed customs bonded factories for export only
e) official aid funded projects;
 f) Taxable services rendered to public road rehabilitation projects financed through donations by
the private sector subject to such conditions as may be set out in regulations made under the
VAT Act
g) Goods for supply as ship-stores to national airlines, shed netting for agricultural or
horticultural use of reinforced PVC or polythene.
h) Taxable services supplied to projects approved by the Government and funded through
donations by any person for the benefit of the poor and destitute persons
i) goods imported or purchased by any company which has been granted a geothermal
resources licence;
j) Goods imported under bond for manufacture of exports, indirect
Exports, goods free of import duty, and goods for use imported official aid- funded projects.
The Minister may grant remission through a letter directing the Commissioner to remit tax pending
publication of the Gazette notice. Such a letter shall be valid for 90 days.
The Commissioner may grant remission of additional tax in individual cases where he is satisfied that
the remission is justified, provided that where additional tax exceeds Kshs 500,000 the remission shall
be subject to prior approval of the Minister.
In order to further speed up the payment of refund claims, the Department has introduced certification of
refund claims by auditors as contained in the Legal notice number 544 of 18th November 1997. This
requires that every application for refund or relief of tax of an amount of Kshs 1,000,000 and above be
accompanied by an auditor's certificate showing that the application is true and the amount is properly
refundable.
ACCOUNTING FOR VAT

Accounting of VAT refers to computation, keeping of supporting records and declaration of the tax
through: -

Keeping of records of sales and purchases and evidence

thereof: Issuing tax invoices/Cash sale receipts;
Declaring and paying the tax thereon to the Commissioner at the end of the month (payable by
20th of the following month)

VAT ACCOUNT. (Format)

INPUT VAT OUTPUT VAT
Balance b/f (over declaration of VAT From Balance b/f (under declaration of VAT XXX
previous periods XXX from previous period)
VAT on purchases XXX VAT on sales XXX
VAT on bad debts XXX Purchases returns XXX
VAT on sales returns XXX
Balance (VAT payable) XXX Balance (Claim for refund) XXX
XXX XXX
SUBMISSION OF RETURNS

The due date for submitting returns is on or before 20th of the month following that which
the supplies were made.
Where 20th falls on a weekend, or on a Public Holiday, returns should be submitted on or
before the last working day before the 20th;

INTEREST AND PENALTY FOR LATE FILING OF RETURNS

Date: On or before 20th of the following month.

Penalty on late filing: Whichever is higher between, Kshs. 10,000 and 5% of the tax due
Penalty on late payment: 5% of the tax due and a late payment interest of 1% per month on the
unpaid tax until the tax is paid in full.

OFFENCES AND PENALTIES

Once registered, a taxpayer should avoid committing offences like.

• Failure to display the VAT certificate
• Failure to issues tax invoices
• Declaring false returns
• Failure to submit or late submission of returns.
• Deducting input tax or claiming input tax refund when one is not entitled.
• Offences committed under the VAT Act, some of which are listed above, are subject to
heavy fines and penalties.

RECOVERY OF UNPAID VAT

The commissioner of VAT has a right to recover unpaid VAT in the following ways:
i. Appointment of tax withholding agents – the commissioner may appoint a person being a
purchaser of taxable goods or services to withhold the tax payable thereon and remit the same
directly to the commissioner at such time as the commissioner may direct. This applies whether
VAT has been charged on the purchase or not.
ii. Collection of tax by distress – Where any sum by way of tax is due / unpaid by a person, the
commissioner may instead of suing for the tax may recover it by distress. For the purpose, he
may empower an authorized officer to seize the goods of that person from whom the tax is
outstanding.
iii. Security on property for unpaid tax – where a person being the owner of land or buildings in
Kenya fails to pay tax due, the commissioner may by notice in writing inform that person of his
intention to attach such assets as a security for unpaid tax. Such assets will therefore act as
collateral for the unpaid tax. Such a notice will be regarded as if it was an instrument of
mortgage. If the tax payer fails to pay the tax due within 30 days of the notice, the commissioner
having taken all reasonable steps to notify the owner of the intended sale and after 21 days of
placing a notice in the gazette may sell the land and buildings to recover the tax, and the
purchaser shall acquire
 title to the land. The proceeds of the sale shall be applied firstly in settling the unpaid tax and
any cost incurred on selling the property. Any balance shall be paid to the owner of the
property.

iv. A civil debt – The unpaid tax may be recovered through a civil debt. Without prejudice to any
other remedy, any tax due and payable under the VAT act may be recovered by the
commissioner by selling the person in a civil case to the extent of the unpaid VAT.

ADVANTAGES OF VAT
• It encourages exportation since exports are zero rated.
• VAT has a wide coverage since it’s charged on goods and services.
• It has no cascading effect i.e. it is not charged on another VAT.
• It improves efficiency since it’s charged on value added thus traders will all the time try to
reduce cost.
• It is convenient since it is paid only when a person has to buy goods or services. It is economical
for the government to administer.
• It gives exemptions to small traders (those whose annual turnover is below 5 million).
• It is not charged on exempt goods and services. E.g. education, health services, fruits, vegetables
all of which are basic requirements of livelihood.
• It is based on value and hence adjusts automatically to effects of inflation.

DISADVANTAGES OF VAT
• It does not discriminate the poor.
• Not all traders of similar goods are covered by VAT, hence causing market imperfections.
It feeds inflation.
• Lacks of civic consciousness since most people are not aware that they are paying VAT. Lack
of VAT knowledge among traders.
• It requires traders to maintain expensive records.
• Traders who sell on credit are required to finance VAT.
• Where there is no price control, traders will increase prices unreasonably citing VAT as a reason.
High tax evasion where invoicing is not strictly enforced.
EXAMPLE 1
The following information relates to the transactions of Communication Solutions Ltd. for the
month of June 2021. The company is registered for VAT.

2 June: Purchased goods worth sh.2,400,000 from Japan. Customs duty was paid at 5%.
2 June: Sold goods to Mobile Connections Ltd. for Sh.960,000 on credit. Goods worth sh.60,000
were found to be defective and were returned.
5 June: Purchased office furniture for Sh.640,000. One desk worth sh.80,000 was defective and
was returned to the seller.
9 June: Purchased office furniture for Sh.4,500,000 on credit from a manufacturing company.
Goods worth sh.500,000 were damaged in transit and were thus not saleable. It cost the
company sh.240,000 to transport the goods.
10 June: Sold goods for cash worth Sh.960,000
12 June: Exported goods worth sh.2,400,000
16 June: Imported goods worth sh.1,500,000 from India. Customs duty was paid at 5%
20 June: Sold goods worth sh.218,000 to XYZ Ltd.
25 June: Exported goods worth Sh.2,600,000 to Kimbo ltd.
30 June: Paid the following expenses for the month of June:
Sales and wages – Sh.1,400,000
Electricity - Sh.48,000
Telephone - Sh.36,000
Water - Sh.10,000
Note: Where applicable, prices are quoted inclusive of VAT at 16%.
Required:
The VAT payable (or refundable) for the month of June 2021.
 Example 2
The following transactions relate to Saweta Ltd. for the month of April 2024
Purchase of goods at standard rate 626,400
Exported goods to South Africa 380,000
Sales at standard rate 1,113,600
Audit fees 37,120
Purchase of fuel and oil for delivery van 29,000
Telephone bills 17,400
Exempt sales 400,000
Exported goods to Zambia 220,000
Catering services 41,760
Purchase of stationery 20,880
Cost of assigning a debt for consideration 100,000
Car park services provided by county authority 50,000
Treatment and supply of natural water 40,000
Purchase of first aid boxes and kits 30,000
Additional Information:
1. The company issued debit notes and credit notes of sh.24,360 and sh.34,800 respectively in respect to taxable
supplies at standard rate.
2. The company returned goods invoiced at sh.29,000 to suppliers because they were of a wrong type. A credit
note was received immediately.
3. The company imported goods valued at sh.320,000 (cost, insurance and freight). These goods were not included
in the purchases figure above. Imported duty was at the rate of 20%.
4. The company transferred a branch as a going concern to another registered company at a cost of sh.450,000 at
the end of April 2024.
5. The company could not identify purchases at the standard rate that were sold as exempt and therefore restricted
deductible input tax.
6. Transactions are inclusive of VAT at the rate of 16% where applicable.
Required
Determine the VAT payable by (or refundable to) Saweta Ltd for the month of April 2024