Withholding VAT was introduced in Kenya w.e.f 1st October 2003. It is not a new tax but a reinforcement measure to ensure that all the VAT charged reaches the Government.
It is a system which involves the declaration of VAT by both the supplier and his customer who has been appointed as a withholding VAT Agent. Institutions appointed as withholding VAT Agents are Government institutions, parastatals, banks, financial institutions, Co-operative Societies, Insurance companies and regular exporters.
How Does Withholding VAT System Work
When a taxpayer (trader) supplies and invoices an appointed withholding VAT Agent the payment for supply is made less VAT charged or that which ought to have been charged. The Agent withholds VAT irrespective of whether the supplier is registered for VAT or not. The Agent issues a withholding VAT certificate to the supplier indicating the VAT withheld. This certificate entitles the trader to claim back the withheld VAT to avoid double taxation since the same tax is declared and paid by the trader through a VAT 3 return. Withholding VAT on taxable supplies not charged VAT is computed using the formula X - X/1.16 where X is the total value of the invoice or taxable supplies.
Supplies Liable to Withholding VAT
Only taxable goods and services are liable to withholding VAT. No VAT is withheld on exempt goods, exempt services and Zero rated supplies.
Submitting Withholding VAT Returns
Withheld VAT is remitted by appointed withholding VAT Agents to the Commissioner on weekly basis unless the Commissioner has accepted an alternative method. The payments are made against VAT 32. A taxpayer whose VAT has been withheld is still required to submit a VAT 3 return and pay the tax charged irrespective of whether the tax has been or will be withheld. The same case applies irrespective of whether the Supplier has been paid or not.
Refund of Excess Credit
A taxpayer is authorized to claim back the withheld VAT on subsequent VAT 3 Return(s) provided he is in possession of withheld VAT certificate (s). Where the excess arising from the system becomes a perpetual feature, the taxpayer has a right to claim it from the Commissioner by lodging a claim on form VAT 4.
To record the Tax Withheld transaction,
Go to Gateway of Tally > Accounting Vouchers > F7: Journal > select VAT Adjustment Class from the Voucher Class List
Select Adjustment of VAT Withheld in the Used for field.
Debit Output VAT ledger (created under Duties & Taxes)
In VAT Class Details screen the VAT/Tax Class selected while creating the ledger will be displayed. If the VAT/Tax Class is not selected for the ledger, you can select the appropriate VAT/Tax Class and skip the Assessable Value field.
Enter the amount in debit field.
Credit the VAT Withheld ledger grouped under Current Assets.
The Credit amount appears.
Set the option Provide Details to Yes to enter VAT withheld details.
In Provide Details screen,
Name of Agent: In this field select the Name of the Agent from the List of Ledger Accounts who has with held VAT.
PIN of Agent: In this field enter the PIN of the Agent.
Note: if the PIN is already mentioned in Agent's Ledger account while creating, the same will be captured in this field.
VAT Withheld Certificate No.: In this field enter the VAT Withheld Certificate Number issued by the Agent.
Date of Payment: In this field enter the Date on which the Withheld VAT is paid to the VAT Department.
Press Y or Enter to accept and save.
Note: The value of journal entry recorded by selecting Adjustment of VAT Withheld in the Used for field is captured in box 13 of Form VAT 3.
'Adjsutment of VAT Withheld' has been shared with
