VAT is a tax on consumer expenditure that was introduced in 1990. Effective tax management is a key business success factor. It involves implementing strategies aimed at ensuring the tax does not adversely affect the pricing strategies and also ensuring compliant to avoid unnecessary fines. Engaging a tax consultant on matters VAT management enables a business to exploit the opportunities presented by the tax and at the same time averting the risk of noncompliance.
Who Should Register For KRA VAT?
All entities whether sole proprietors, partnerships, or companies supplying taxable goods are qualified to register. The law, however, makes it mandatory for some entities to register. An entity whose taxable turnover reaches Ksh 5 million per year or expected to reach this registration threshold. Failure to register warrants a compulsory registration by the commissioner and the concerned entity is liable to a Ksh 100000 penalty. Entities supplying taxable goods whose turnover is below Ksh 5 million are entitled to a voluntary VAT registration.
Penalties for not complying with VAT
Kenyan businesses have problems when it comes to complying with the VAT requirements. Noncompliance leads to huge penalties that not only erode profits but also threaten business survival. The following are the penalties for not complying with the VAT requirements:
- A fine of 20000 for failing to register
- A Ksh 100000 default penalty for enforced registration
- Failure to file returns before the 20th day of the next month attracts a fine of Ksh 200000 or 5% of the amount of tax in consideration whichever is higher
- Late payment of tax attracts a compound interest of 2% regardless of whether the returns were filed on time.
- Fraudulent accounting attracts a fine of Ksh 400000 or double the amount of tax in consideration
- The penalty for failure to issue a tax invoice is between 10000 and 100000
Advantages of Registering VAT
Specific benefits are accrued from registering making the registration a necessity for both small and large businesses. Some of the advantages of registering your business for VAT include:
- Avoiding fines and penalties- registering a business helps avert penalties and fines that are a threat to profitability.
- Registration attracts customers- registered customers prefer engaging suppliers that are VAT registered as it increases the input tax that in turn reduces the tax liability.
- Being registered makes a business appear big and credible- Registered entities give ETR receipts and this increase transaction authenticity. It is an indication that the concerned transaction is authentic as the ETR receipt signifies that the transaction is recognized by the tax authority as an agent of the government.
At Blue Ocean Outsource we help you manage your value-added tax to exploit the opportunities presented by the tax and at the same time ensuring compliance with the existing regulations. Contact us for tax consultancy services.