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Introduction

Section 36 of the VAT Act deals with cancellation of the VAT registration.

The originator of the VAT registration can be:

1. Taxpayer – applies for cancellation.
2. Commissioner cancels the obligation.

Application for cancellation of registration by taxpayer

Application is done in writing to the Commissioner (with all details). The following are some of the reasons for applying for cancellation of VAT registration:

1. Person ceases to make taxable supplies – application within 30 days from the date the person ceases to make taxable supplies.
2. Person makes taxable supplies but turnover lower than threshold – no date limit.

Cessation of business

The following reasons may result in cessation of business:

1. Closure of business.
2. Sale of business.
3. Death of trade.
4. Death of owner or owners.
5. Legal incapacitation of business.
6. Insolvency of the business.
7. Change of status e.g. from partnership to a limited company.

The persons should seek for cancellation of registration

Low taxable turnover

The taxpayer with low taxable turnover will write to KRA seeking to be deregistered. The taxpayer will continue to meet their tax obligations until advised to stop. Taxpayer can be deregistered or put in dormancy status. The taxpayer will be required to return the VAT certificate.

Commissioner’s decisions

The commissioner can do either of the following:

1. Decline the application – certificate is not cancelled, the decision is communicated in writing.
2. Accept the application – certificate is cancelled when the Commissioner is satisfied. Decision must be in writing.

Deregistration is irrespective of whether a person was registered for less or more than 12 months.

Commissioner initiative to cancel certificate

The decision/notice is in writing. The Commissioner is satisfied that the person does not:

1. Keep proper records.
2. Furnish regular and reliable tax returns.
3. Comply with obligations under other tax revenue laws (e.g. income tax, excise duty).
4. There are reasonable grounds that the person will not keep proper records or furnish regular and reliable tax returns.

Effective tax certificate cancellation 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 VAT Deregistered Taxpayer

The persons cease to hold out as VAT registered and are expected to do the following:

1. Remove all indications in invoices, delivery notes, letterheads, tender documents etc.,
2. Submit a final VAT return and pay all due VAT within 15 days. Question is this negotiable?.
3. 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.

Registration Offences

There are offences that a person can commit. The following are some of the registration 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 or jail not exceeding 2 years or both.

Summary

1. Cancellation of certificate can be initiated by the taxpayer or by the Commissioner for failure to make returns, maintain records etc.
2. A person has VAT liability on registration, as registered, on de-registration.

For any clarifications, get in touch through the email Email: taxkenya@gmail.com.