VALUE ADDED TAX AUTO ASSESSMENT SYSTEM
The Kenya Revenue Authority (KRA) is currently in the process of launching and implementing a Value Added Tax Auto Assessment System (VAA). The VAA will (i) detect inconsistencies between purchase and sales invoices which have been declared in Value Added Tax (VAT) returns (ii) communicate the inconsistencies to both the purchaser and the supplier and (iii) (on that basis) raise an auto assessment on the purchaser for any outstanding inconsistencies.
The VAA is intended to cure the problem of fictitious VAT inputs mismatched against VAT outputs (which, according to the KRA, between July 2016 and December 2017 were averaging 75.25%), broaden the tax base and subsequently increase revenue collection.
The proposal by KRA is to have the VAA work as follows:
- matching the entries in the VAT return of the purchaser to that of the supplier and reporting inconsistencies to both parties with a fifteen (15) day timeline to amend the returns;
- if the return is not amended by the expiry of the said fifteen (15) days, the system is programmed to send out a further reminder to the purchaser and supplier allowing a further fifteen (15) days after which it will issue an auto assessment on the purchaser;
- the purchaser is then accorded thirty (30) days to settle the assessed amount failure to which the matter will be handed over to a debt officer of the KRA. The rationale, it appears, is that purchasers have been claiming input VAT on the basis of invalid invoices.
Putting it into perspective
It is clear that the VAT system in Kenya has not achieved its potential with the tax averaging around twenty five per cent (25%) of overall collections. The incidence of tax evasion and fraud has been significant and the VAA is being seen as a means to address this issue using data analytics and the technology available in the iTax system.
The system will require meticulous record keeping (with a keen focus by registered businesses whose products or services contain a mixture of standard rated, zero-rated and exempt supplies) and compliance by registered businesses. This is an aggressive move by the KRA to achieve its revenue collection targets by using data analytics.
Guidelines on the conclusive implementation of the VAA are yet to be issued by the KRA but we understand that the system is likely to be operational in the course of 2018.