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New Tax Acts

The following five new Bills referred to in our August 2013 newsletter have now been passed into Law by Parliament, having been assented to by the President and duly gazetted:

  • Value Added Tax (Amendment) Act, 2013 (Act 860);
  • Special Import Levy Act, 2013 (Act 861);
  • National Fiscal Stabilisation Levy Act, 2013 (Act 862);
  • Customs, Excise (Duties and Other Taxes) (Amendment) Act, 2013 (Act 863); and
  • Communication Services Tax (Amendment) Act, 2013 (Act 864).

The main provisions of these Acts do not differ significantly from the details as per our August 2013 newsletter.


VAT act

The VAT Bill re-tabled during the 2013/14 Budget Speech was assented to on 14 August 2013 and enacted as the Value Added Tax Act, 2013 ("the Act").

The commencement date of the Act is by notice, which notice has not yet been published.

The Act incorporates current subsidiary legislation (VAT rules, orders and regulations) into the principal regulations and introduces the following sections:

  • place and time of supply;
  • application of technology; and
  • invoices, records and returns.

The 12% VAT rate on industrial heavy diesel oil, residual fuel oils and electrical energy has been abolished and replaced with the standard rate of 16%.

The Act significantly reduces the number of exempt and zero rated supplies.

The current VAT Act allows for inputs to be claimed up to a period of 12 months from the invoice date. The Act provides that input tax shall be allowed as a deduction for six months after the end of the tax period in which the supply or import occurred.

Under the current VAT Act, importers of taxable services must declare and pay reverse VAT. Under the new Act, where a service is imported by a registered person, such person shall be deemed to have made a taxable supply to himself and where a full input credit is payable on the imported service, the value of the taxable service shall be reduced to nil.

Where a non-resident supplier makes taxable supplies to non-registered persons, the non-resident shall be required to appoint a tax representative in Kenya who will be responsible to account for VAT on behalf of the non-resident supplier.


Tax Appeal Tribunal Ruling on Recharges

The Tax Appeal Tribunal (TAT) has ruled against two non-resident taxpayers on the question of whether their taxable turnover in Nigeria for purposes of calculating corporate income tax on the deemed profit basis should be determined by exclusion of any part thereof paid to a Nigerian subsidiary engaged to support local execution of a contract.

A superior court may overturn this ruling on appeal. However, the implication of the ruling is that where a foreign entity is the sole signatory to a contract, the total receipts attributable to the contract will form the turnover liable to corporate income tax for purposes of assessing the foreign entity on a deemed profit basis.


Practice note on withholding tax on service fees

Following the announcement of a 5% withholding tax on domestic service fees in the 2013/2014 Budget Speech of 13 June 2013, the Tanzania Revenue Authority has issued Practice Note 01/2013 in August to address administrative problems arising from the wide scope of the withholding tax.

The withholding tax is due on payments of a service fee with a source in Tanzania by a resident to another resident or domestic permanent establishment of a non-resident.

The service fee should be for providing professional or consultancy services or other such services of an independent business nature, and specifically includes scientific, literary, artistic, educational or training activities, as well as activities of physicians, surgeons, lawyers, architects, engineers, surveyors, dentists, accountants and auditors.

The supply of water and electricity shall be regarded as goods and therefore not subject to withholding tax.

The Practice Note further provides guidance on what is regarded as a service fee with a source in Tanzania and lists payments excluded from the withholding tax.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.