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BRIEF ON THE NATIONAL EFFECTS OF THE FINANCE ACT 2021 ON THE VAT ACT

Introduction

On 29th June 2021, the President assented to the Finance Act 2021 (“the Act”) on the proposal of the National Assembly and National Treasury. An insight into the Act reveals its various effects on the Value Added Tax Act (“VAT Act 2013”) for the 2021/2022 government fiscal year.

Digital supplies Tax

The Act enforces VAT charges on digital supplies, that is supplies made over the internet or an electronic network or through a digital marketplace. This has been done through an amendment of section 5(7) of the VAT Act, 2013.

The Act also defines the term digital marketplace as “an online platform which enables users to sell or provide services, goods or other property to other users.”

Affected persons and effect:

Persons and businesses that supply goods and services using an online platform will be chargeable to VAT.

Effective date: 1st July 2021

Tax on imported services

The Act amends section 2(c) of the VAT Act 2013 to provide for the charge of VAT on imported services for any person in Kenya, whether registered for VAT or not. This is done by amending the definition of supply on imported services to include non-registered person importing services.

Affected person & effect:

The new amendment affects all persons not registered for VAT receiving imported services. The effect is that such persons shall incur reverse charge VAT payable based on the full value of the imported service.

Effective date: 1st July 2021

Restricted deduction of input tax

The Act introduces an amendment to section 17(1) of the VAT Act 2013 to ban any claim for input tax on cost of acquisition, leasing, hiring or repair of passenger cars or mini buses. Input tax shall only be allowed where the passenger cars or mini buses are acquired by the registered person exclusively for the purpose of making a taxable supply of that automobile in the ordinary course of a continuous and regular business of selling or dealing in or hiring of passenger cars or mini buses.

Affected person & effect:

Persons who lease or hire out passenger cars or mini-buses can no longer claim input tax.

Effective date: 1st July 2021

Exempt supplies made vatable

An amendment to the First Schedule of the VAT Act 2013 now introduces VAT charges on several supplies including:

  • Disposable plastic syringes
  • Heparin and its salts
  • Milk, specifically prepared for infants
  • Milk in solid forms of a fat content by weight exceeding 1.5%
  • Certain airlid papers
  • Food preparations specifically prepared fr infants
  • Vitamin C and its derivatives
  • Insulin
  • Food suppliments
  • Transfer of assets and other transactions related to transfer of assets into REITs and asset-backed securities

Additionally, the charge of VAT on bread included in the Finance Bill has been rejected by the National Treasury. Bread therefore remains zero-rated.

Affected person & effect:

Suppliers and consumers of the above supplies.

Effective date: 1st July 2021

Vatable supplies made exempt

Certain supplies previously chargeable to VAT are now exempted, including:

  • Specialized equipment for the development and generation of solar and wind energy
  • Medical ventilators and inputs for the manufacture of medical ventilators
  • Other breathing apparatus and gas masks
  • Biogas and pre-fabricated biogas digesters
  • Tractors pther than road tractors for semi-trailers

Affected person & effect:

Suppliers and consumers of the above supplies.

Effective date: 1st July 2021

For More Information please contact:

Mr. Benson Ngugi (benson.ngugi@attorneysafrica.com)

Mr. Ken Rutere (ken.rutere@attorneysafrica.com)

Mr. Martin Moturi (martin.moturi@attorneysafrica.com)