What repercussions does the VAT ACT 2013 have for Kenyan Manufacturers?
Over 150 representative of the manufacturing sector attended a half day seminar organised by the Kenya Association of Manufacturers (KAM) to demystify the new VAT ACT 2013 gazetted on 23rd August 2013. The law came into effect on the 4th September 2013 and consumers have been feeling the pinch as the prices of Milk, Newspaper and other consumables shot up virtually overnight. Industry Players wanted to know how this law will affect its operations.
The session was conducted by Nikhil Hira, a consultant from Deloitte who took participants through changes in the bill and 3 KRA officials who also took questions on how the new law.
“The new VAT Act is a much better piece of legislation than what we previously had. But like all pieces of legislation there are going to be things we don’t like but from the perspective of managing and enforcing VAT as tax payers, this legislation is much better,” said Mr. Hira. He went on to explain why. “The new act has clarified controversial areas, given new definitions and clarified on place and time of supply. New definitions given include money, person, non resident person and tax representative.”
Betty Maina, KAMs CEO brought up the Issue of transitions and time frames such as outstanding TREO consignments since the TREO no longer exists. The Cabinet Secretary curtailed his powers when he said he could not grant exemptions. But there is a 5 year grace period already where a project is still continuing or can continue without disruption for 5 years.
Mr. Maina from KRA gave a presentation on the need to have the new legislation. He explained the prices increases saying: “In a liberalized economy you are not sure that by zero rating an item the price will go down because in the 1990s when taxes, interest, etc were controlled by the treasury it was very easy to deal with it, you zero rated an item and the price went down. But now you can zero rate a product, you are not so sure that the price will go down because the businessman does not pass it on. A good example being given now is the one of bread,” said Maina.
He also took up the issue of VAT refunds saying: “There was a need to have the holes sealed because even if funds were provided for to pay those refunds, it was important to ensure that VAT refunds does not compete with other public needs except export refunds.”
He also explained the reason that tax incentives had been removed. “is tax really a critical incentive? and when you look at the priorities given by investors, tax does not rank at the top it ranks at either no. 9 all the way down to 5. Priority is given to security and infrastructure etc, ” Mr. Maina added.
Business organizations will now have to adjust their internal operation to incorporate the new rules.