VAT
Small businesses are relieved from the burden of VAT registration.
As the Finance Bill proposes to raise the threshold form those making sh5 million in annual turnover to those with annual sales under sh8 million, businesses could be exempt from having to register as value-added tax (VAT) agent.
The proposed changes to Section 34 of the VAT Act, 2021, in the Finance Bill 2024, would relieve businesses with annual turnovers of between Sh5 million and Sh8 million from the burden, which had previously collected VAT on behalf of the government.
The Finance Bill, 2024, proposes that Section 34 of the VAT Act be amended by deleting the words “five million shillings “and replacing them with “eight million shillings” in paragraphs( a) and( b) and “separating” in paragraph( b) and “separating” in paragraph( a) of the Finance Bill, 2024).
The VAT Act, 2021, requires that any person who in the course of doing business makes taxable supplies with a Sh5 million annual value should register as a VAT taxpayer
Registering as a VAT taxpayer obligates a business to withhold VAT and remit it to the government, failure to which one would be penalized.
“A person who in the course of a business is about to commence making taxable supplies the value of which is reasonably expected to exceed five million shillings in any period of twelve months, shall be liable for registration under this Act and shall, within 30 days of becoming so liable, apply to the Commissioner for registration in the prescribed form”, the Act adds in Section 34.
But should the proposal in the Finance Bill 2024 be passed, this would see businesses with annual revenues of less than Sh8 million( about Sh666, 666 monthly revenues) not obligated to withhold VAT on behalf of the government.
A business with an annual revenue of Sh8 million translates to an average daily revenue of Sh22, 000. Currently, businesses with an average daily revenue of about Sh13, 700, are obligated to withhold and remit VAT to the government, failure to which they face penalties
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