The-Accountant-Jul-Aug-2017

Public Policy
consumed outside Kenya
(3) Where the Commissioner has
reasonable grounds to believe that goods
treated by a registered person as exported
may not have been exported-
(a) the Commissioner may, by notice in
writing, require the registered person to
produce, within the time specified in the
notice, a certificate signed and stamped
by a competent authority outside Kenya
stating that the goods were duly landed
and entered for home consumption at a
place outside Kenya;
(b) The supply shall not be treated as
exportation until the certificate referred
to in paragraph (a) has been provided to,
and accepted by, the Commissioner.
For the case of goods, the goods will be
zero rated, if the goods are processed
under the requirements of East African
Community Customs Management
Act and delivered to a recipient outside
Kenya at an address outside Kenya. In
this case, a customs entry is required
as proof of export. To prove that the
goods were delivered to the recipient an
import entry generated in the country
of the recipient may be required or any
other reasonable proof to show the
goods were delivered.
As per the main VAT act, services
exported out of Kenya qualify for zero
rate if provided for use or consumption
outside Kenya. Regulation 13 has
further stated that the services exported
outside Kenya must be provided to
a recipient outside Kenya for use,
consumption, or enjoyment outside
Kenya. It has also stated that zero rating
does not apply to;
(a) Taxable services consumed on
exportation of goods unless the services
are in relation to transportation of
goods which terminates outside Kenya;
(b) Taxable services provided in Kenya
but paid for by a person who is not a
resident in Kenya.
The first proviso, excludes from zero
rating all taxable services consumed
on exportation of goods other than
where the services are in relation
to transportation of goods which
terminates outside Kenya. This
limitation appears to clarify the
requirement set out in paragraph 10
of Part A of the Second Schedule that
provides that the ‘Supply of taxable
services in respect of goods in transit
are zero rated’. This would therefore
exclude from zero rating services such
as outbound customs clearing services.
The second proviso, excludes from zero
rating all taxable services provided in
Kenya but paid for by a person who is
not a resident in Kenya. These are services
that would be considered used, consumed
or enjoyed in Kenya, but are paid for by
a person who is not resident in Kenya.
Such services include attending a training
session in Kenya or a conference meeting
in Kenya by an employee of a nonresident
company.
The use of the word enjoyment is
not found in the main act but is an
introduction into the VAT lingo by the
regulation. An online dictionary defines
enjoyment as the state or process of
taking pleasure in something e.g. the
enjoyment of good wine. It also means
the action of possessing and benefiting
from something.
The regulations do not give any further
guidelines on which services are:
a) used, consumed or enjoyed in Kenya,
b) are for the benefit of a nonresident or
paid for by a nonresident, and
c) subject to VAT in Kenya (the place of
taxation).
In the absence of any further local
guidelines, we seek guidance from The
International VAT/GST Guidelines
(OECD guidelines) Published on April
12, 2017. (Citation:OECD (2017),
International VAT/GST Guidelines,
OECD Publishing, Paris. DOI: http://
dx.doi.org/10.1787/9789264271401-en).
In an increasingly globalized economy,
the OECD guidelines present a set of
internationally agreed standards and
recommended approaches to address the
issues that arise from the uncoordinated
application of national VAT systems in
the context of international trade. They
focus in particular on trade in services
and intangibles, which pose increasingly
important challenges for the design and
operation of VAT systems worldwide.
The OECD guidelines provide
(in Guideline 3.1) that VAT for
internationally traded services and
intangibles should be taxed according
to the rules of the jurisdiction of
consumption (The destination principle).
It further provides (in Guideline 3.2)
that for the purposes of implementing
Guideline 3.1, for business to business
supplies, the jurisdiction where the
consumer is located has the taxing rights
over internationally traded services and
intangibles. The location where the
customer has located its permanent
business presence is the first proxy used
to determine where the customer intends
to use the services or intangibles. This is
referred to as the general rule.
The general rule is applied after
determining the nature of the supplies as
well as the identity of the supplier and the
customer.
Paragraph 3.114 of the OECD
guidelines provides that where services
are rendered to the consumer and are
consumed by the consumer at the same
time and place where they are physically
performed in the presence of both the
person performing the supply and the
person consuming the supply, the place
of taxation is the place of performance.
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