Are you one of the many taxpayers searching for information on VAT de-registration in Kenya? If you are, then this article is for you. Section 36 of the VAT Act (2013) deals with VAT de-registration but it is aptly titled VAT cancelation – same thing, different words..
Originators of the VAT De-registration
VAT de-registration can be originate from two sources:
- Taxpayer – who applies for the registration cancellation.
- Commissioner cancels the VAT obligation.
Definition of VAT De-registration
VAT de-registration is the process of removing a taxpayer from the list of VAT registered taxpayers and the taxpayer is no longer required to comply with the tax law and the VAT obligation is removed from their PIN certificate.
Application for VAT De-registration by Taxpayer
A taxpayer who no longer qualifies to be registered for VAT will apply in writing to the tax commissioner (with all requisite details). They will be required to include the key reasons for the VAT de-registration application.
The following are some of the reasons for applying for cancellation of VAT registration:
a. Cessation of business
The taxpayers has ceased to make taxable supplies. The application should be made within 30 days (or other days set out by the tax commissioner) from the date the person ceases to make taxable supplies.
The following reasons may result in cessation of business:
- Closure of business.
- Sale of business.
- Death of trade.
- Death of owner or owners.
- Legal incapacitation of business.
- Insolvency of the business.
- Change of status e.g. from partnership to a limited company.
The persons should seek for cancellation of the VAT registration
b. Low taxable turnover
The taxpayer is making (selling) taxable supplies but the turnover is lower than threshold. There is no date limit, a taxpayer can apply when you want.
The taxpayer with low taxable turnover will write to the tax commissioner seeking to be de-registered from VAT.
What taxpayer do after appying for de-registration
a. The taxpayer will continue to meet their tax obligations until advised to stop.
b. Taxpayer can be VAT de-registered or put in dormancy status.
c. The taxpayer will be required to cease charging VAT once de-registered.
c. Commissioner’s decisions
The commissioner can do either of the following:
- Decline the application – certificate is not cancelled, the decision is communicated in writing.
- Accept the application – certificate is cancelled when the Commissioner is satisfied. Decision must be in writing.
VAT de-registration is irrespective of whether a person was registered for less or more than 12 months
Commissioner initiative to cancel VAT certificate
The decision/notice is in writing. The Commissioner is satisfied that the person does not:
- Keep proper records.
- Furnish regular and reliable tax returns.
- Comply with obligations under other tax revenue laws (e.g. income tax, excise duty).
- There are reasonable grounds that the person will not keep proper records or furnish regular and reliable tax returns.
Effective VAT De-registration Date
Note that failure to remit VAT money is not listed as a ground for certificate cancellation. On cancelled VAT certificate the date is specified in the cancellation notice which is sent on email. The person is still liable for acts committed or omitted while registered. The question is what happens if the taxpayer does not get the notice?
Way Forward for a VAT De-registered Taxpayer
The persons cease to hold out as VAT registered and are expected to do the following:
- Remove all indications in invoices, delivery notes, letterheads, tender documents etc.,
- Submit a final VAT return and pay all due VAT within 15 days. Question is this negotiable?.
- Pay VAT within 15 days on any trading stocks at hand at the time of cancellation if input tax had been claimed (local and import supplies) – considered a sale though earlier.
VAT De-registration Offences
There are VAT de-registration offences that a person can commit. The following are some of the offences:
1. Failure to apply for registration as required under the VAT Act.
2. Apply for cancelation of VAT registration when still required to be registered.
3. Failure to apply for cancellation of registration as required under the Act.
4. Failure to comply with Section 35 or 36 (7)(a)
5. Fine less than kshs 200,000 9 or any other amount by the tax commissioner) or jail not exceeding 2 (or other period) years or both.
There are VAT de-registration offences that a person can commit. The following are some of the offences:
- Failure to apply for registration as required under the VAT Act.
- Apply for cancelation of VAT registration when still required to be registered.
- Failure to apply for cancellation of registration as required under the Act.
- Failure to comply with Section 35 or 36 (7)(a)
- Fine less than kshs 200,000 or jail not exceeding 2 years or both.
Summary
- Cancellation of certificate can be initiated by the taxpayer or by the Commissioner for failure to make returns, maintain records, etc.
- A person has VAT liability for registration, as registered, on de-registration.
For any clarifications, get in touch through the email Email: taxkenya@gmail.com.
