VALUE ADDED TAX (VAT)

VAT is a tax on consumer expenditure. It is levied at each stage where value is added on goods and services.
Important terms in VAT
Value Added: It is the increase in worth of a supply when it changes hands in the line of manufacture and
distribution.
Output Tax: This is the VAT charged by a registered person when he makes a supply of taxable supplies
in the course of his business. It is VAT charged on sales.
Input Tax: This is the VAT charged on a taxable person when he acquires taxable supplies for use in the
furtherance of his business. It is VAT charged on purchases and services such as electricity, telephone,
stationeries, accounting, legal services etc
Taxable person: This is a person who is liable to apply for registration under the VAT Act (check
registration for VAT).
VAT payable/refundable: It is the difference between input and output tax. If output tax is more than the
input tax the difference is the VAT payable. If input tax is higher than output tax the difference is the VAT
refundable.
Tax period: It means one calendar month. VAT is accounted for on a monthly basis.
Rates of tax
 16%...the general rate charged on taxable goods and taxable services other than zero –rated
supplies.
 0%...for zero rated supplies i.e. exports, agricultural machinery, farm inputs, pharmaceutical
products etc.
REGISTRATION
This is the process by which traders who are eligible for registration under the VAT Act are issued with
registration certificates. Only registered person are allowed to charge VAT
There are two types of registrations
i. Compulsory registration
ii. Voluntary Registration

Compulsory registration
The VAT act requires that any person shall be registered compulsorily for VAT if he makes or
intends a supply of taxable good and services with a minimum turnover of kshs.5 million per
year.
Voluntary Registration
Any person can also register voluntarily even if the turnover is below the threshold required.

Deregistration
This is removal of a registered taxpayer from the VAT register. Once deregistered the taxpayer ceases to
charge VAT.
De-registration may take place when:-
 One ceased to trade in taxable goods and /or taxable services,
 One closes the business,
 The turnover limit falls below ksh.5 million in a year;
 The sole proprietor dies;
 The company becomes insolvent ;
 The registered person leaves the country.

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Changes affecting registration
A registered person shall notify the commissioner details affecting registration within 14 days if any of the
following changes occurring:-
 Changes of address of the place business.
 Additional premises are used or will be used for purpose of business.
 Premises used for the business ceased to be so used.
 Change in the trading name of the business
 In case of a limited company, an interest of more than 30% of share capital has been obtained by a
person or group of person.
 The change of the person authorized to sign returns and other documents
 Change of partners in partnership

Supply
This means transacting in taxable goods or services. Supply includes the following:
a) The sale, supply or delivery of taxable goods to another person
b) The sale or provision of taxable services to another person.
c) The appropriation by a registered person of taxable goods or services for his own use outside
the business.
d) The making of a gift of any taxable goods or services;
e) Letting of taxable goods on hire, leasing or other transfers;
f) Provision of taxable services by a contractor to himself in constructing a building and related
civil engineering works for his own use, sale or renting to other persons.
g) The receipt of a sum of money by a registered person for loss of taxable goods or services.
h) Any other disposal of taxable goods or provision of taxable services.

Tax point
Tax point means when tax becomes due and payable to the commissioner. Tax is due and payable when:
 The supply takes place;
 An invoice is issued;
 Part or full payment for the supply is made;
 A certificate is issued by an architect, surveyor of capacity, in respect of the service (in case of
construction industry).
Whichever comes earliest of the four.
The taxpayer may however defer payment of the tax due up to 20th day of the month following that of sale.
Value of supply
The value for VAT for a supply is the value on which VAT is due. The amount of VAT is equal value for
VAT x VAT rate.
Value for VAT for a supply is the consideration paid for a supply. The consideration can be in money form
or in kind. The supply value for VAT will be:
i. Where consideration is wholly an amount of money (cash), value for VAT is the full money value
less any discount offered.
ii. Where consideration is not wholly an amount of money, (gift of taxable goods or services or
drawing of taxable goods or services), the value for VAT is open market value.
iii. In case of imports, value for VAT is the value for duty plus the duty.
iv. In case of hire purchase transactions, value for VAT is the cash price.

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VAT records
The act prescribed the following records to be kept by registered persons.
 Copies of all invoices issued in serial number order.
 A vat account showing totals of output and input tax in each period and the tax payable or
refundable.
 Copies of all credit and debit noted issued, in chronological order.
 Purchases invoices, copies of custom entries, receipts for payments of custom duty or tax and credit
& debit notes received.
 Details of the amount or tax charged on each supply made or received.
 Details of each supply of goods and services from business premises.
 Copies of stock records.
All records must be kept in the Kiswahili or English language and for a period of 5 years from the date
when the last entry was posted.
Obligations of a taxable person
i. To apply for registration as a taxable person. Only registered persons are required to charge VAT
and claim input tax
ii. Display a certificate of registration in a clearly visible place in ones business premises.
iii. To install and maintain a functioning electronic tax register machine(ETR)
iv. To charge VAT on all supplies of taxable goods of services.
v. To issue a serially numbered tax invoice or cash sales receipt generated and supported by ETR
receipt on every sale made.
vi. To keep books and records of all supplies made or recorded and a summary of vat for the period
covered by the return.
vii. To file returns and pay vat due on or before 20th of each month. However where 20th day of the
month falls on a public holiday, or a weekend, the returns together with payment should be
submitted on the last working day before the 20th.
viii. To retain books and records for a period of 5 years.
ix. To avail books and records at all reasonable times for inspections by authorized officer of the
department and to provide the officer with any information pertaining to the business and access to
business premised whenever required to do so.
x. Pay immediately any undisputed assessment made.

Rights of a registered taxpayer

A taxpayer has a wide range of rights including the following among others;-
a) To claim input tax incurred for the furtherance of the registered business
b) To claim all types of refunds where applicable
c) To get vat information from tax department.
d) To be treated fairly and with impartiality
e) Privacy and confidentiality
f) Courtesy and consideration
g) Presumption to honesty
h) To object to any disputed assessment
i) To demand identification of visiting KRA officers
j) To defer payments of vat up to 20th of the following month thereby enjoying soft loan from kra.

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Prohibited input tax deduction
These are circumstances under which even a registered person cannot claim input tax. This includes input
tax on
• Passenger motor vehicles and parts used in their repair except where used exclusively in the supply
of taxable goods and services
 Entertainment, restaurant & accommodation services
NB: Input tax is however deductible where the aforementioned goods are purchased as stock-in-trade.

Submission of returns and payment of tax

 The due date for submitting returns is on or before 20th of the month following that which the sales
were made. Where 20th falls on a weekend, or on a public holiday, returns should be submitted on
or before the last working day before the 20th failure to submit a return, late submission or
submission of payment returns without payment of the tax due is liable to a default fine of ksh10,000
or 5% of the tax due, whichever is higher. An additional compounded interest of 2% per month is
also levied on the unpaid tax.
 Returns can now be filed online through our KRA online services portal; http/www.kra.g.ke/portal.
 For payment returns, an E-slip is generated. The E-slip and the tax due are presented to the
designated banks for payment.
Offences and penalties
Offences committed under the VAT Act attract heavy fines and penalties. Such offences include:-
 Failure to issue ETR generated tax invoices;
 Filling false /fraudulent returns;
 Failure to submit or late submission of returns;
 Late and/or nonpayment of the tax due;
 Failure to install and use ETR machines

Vat Refunds
The two most common types of Value Added Tax (VAT) refunds are made pursuant to the
provisions of Section 17(5) of the VAT Act 2013 which allow payment of excess input tax to
a registered person where :-

1. Refund arising from making zero rated supplies – whereby the registered VAT taxpayers deal with
taxable supplies listed under the second schedule of the VAT Act. However,
the claim should be on the inputs that are solely used in the making of the zero rated supplies. Also
the taxpayer has to make the claim within 12 months from the date of the supplies.
2. Refund arising from tax withheld by appointed tax withholding agents and the registered person
lodges the claim for the refund of the excess tax within twenty-four months from the date the tax
becomes due and payable. For example, where a contractor supplies goods or services to an
appointed withholding VAT agent, the agent withholds the tax at 2%. Due to the claim of input tax
from the output tax while filing, the already withheld tax puts the contractor at a refund position.
Other instances where the claim on input tax can be made include;
3. Tax paid in error – For instance, where a withholding VAT agent withholds tax for the wrong
taxpayer, the taxpayer then can apply for the refund for the tax paid in error. The claim however
should be made within 12 months from the date of payment.
4. Bad Debts – This claim is made when a supplier is not paid by the buyer for goods they have
supplied. However, the claim should be made after 3 years, on the basis that the buyer has been
declared insolvent by the court. The seller has to prove that all avenues have been sort in claiming

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 the debt including seeking redress from the court
have been unsuccessful. This claim on bad debts has to be made within 5 years. However,
if the commissioner grants the seller the refund, and the seller us able to recover some amounts
from the buyer from the bad debt refund granted, the supplier has to refund the VAT to the
commissioner within 30 days from the compensation. If not, the refund VAT accrues a penaltyat
2% per month of the refund value and a 1% interest.

QUESTION ONE
Athi Cement Ltd. manufactures high quality cement. The cost of production by Athi Cement Ltd. is
Sh.410 per bag of 50Kg. This includes vatable inputs of sh. 220. Mr. Mali Mingi is a hardware merchant.
He purchases cement from Athi Cement Ltd. which he then sells to his customers. Both Mali Mingi and
Athi Cement Ltd. require a profit markup of 20% on cost. Cement attracts 16% VAT.
i. Determine the VAT payable by Athi Cement Ltd per bag of cement
ii. Determine the VAT payable by Mali Mingi per bag of cement and the price at which he sells a
bag of cement to his customers.
Solution
i. VAT payable by Athi Cement Ltd per bag of cement

Athi Cement Ltd

Cost of production 410
Mark up 20%x410 82
Selling price exclusive of VAT 492
VAT 16%x492 79
Selling price inclusive of VAT 571

VAT payable = Output tax − input tax

𝐼𝑛𝑝𝑢𝑡 𝑉𝐴𝑇 = 16%𝑥220 = 35.2
VAT payable = 79 − 35 = 44

ii. VAT payable by Mali Mingi per bag of cement

Mali Mingi
Buying price exclusive of VAT 492
Mark up 20%x492 98
Selling price exclusive of VAT 590
VAT 16%x590 94
Selling price inclusive of VAT 685

VAT payable = Output tax − input tax

VAT payable = 94 − 79 = 15
NB/ The VAT payable by Malimingi is 16% of his markup since this is the value that he has added to the
value of cement. This is why the tax is referred to ass Value Added Tax (VAT)

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QUESTION TWO
Meka Ltd. imports goods vatable at standard rate and transports them to its factory in Mazeras, where
they are converted into finished goods for sale in the local market.
The cost of conversion is 25% of the total costs incurred in bringing the goods to Mazeras. The company
earns a markup of 40%. During the month of May 2021, the firm imported goods worth Sh. 2,000,000
and paid import duty at 20%. It then incurred a further 10% as transport cost to Mazeras. The goods
were all converted and sold in May 2021. The above costs are exclusive of VAT.
Required:
Compute the VAT payable by Meka Ltd. and show the due date.
Solution
Import value (CIF) 2,000,000
Import duty (20%x2,000,000) 400,000
Vatable value 2,400,000
VAT 16%x2,400,000 384,000 Paid upon clearing in the port
Value inclusive of VAT 2,784,000

Vatable value 2,400,000

Transport cost (10%x 2,400,000) 240,000
2,640,000
Conversion cost (25%) 660,000
Total cost 3,300,000
Markup (40%) 1,320,000
Selling value exclusive of VAT 4,620,000
VAT 16% 739,200 Charged from the buyer
Selling value inclusive of VAT 5,359,200

𝑀𝑒𝑘𝑎 𝐿𝑡𝑑 𝑤𝑖𝑙𝑙 𝑓𝑖𝑟𝑠𝑡 𝑝𝑎𝑦 𝑠ℎ. 384,000 𝑤ℎ𝑒𝑛 𝑐𝑙𝑒𝑎𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑔𝑜𝑜𝑑𝑠 𝑎𝑡 𝑡ℎ𝑒 𝑝𝑜𝑟𝑡 𝑎𝑛𝑑 𝑡ℎ𝑒 𝑝𝑜𝑖𝑛𝑡 𝑜𝑓 𝑠𝑎𝑙𝑒
𝑉𝐴𝑇 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 𝑝𝑜𝑖𝑛𝑡 𝑜𝑓 𝑠𝑎𝑙𝑒 = 𝑂𝑢𝑡𝑝𝑢𝑡 𝑡𝑎𝑥 − 𝐼𝑛𝑝𝑢𝑡 𝑡𝑎𝑥 = 739,200 − 384,000 = 355,200

Note that for imports, the buyer accounts for VAT on purchases when clearing the goods. This is referred
as reverse charge. In other transactions, it is the seller who accounts for VAT on sales. For imports, the
seller is outside the jurisdiction of Kenyan taxes and thus the buyer is required to account.

QUESTION THREE
Given below were the purchases and sales made by Tough Limited during the month of December 2022.
The prices were inclusive of VAT at the standard rate of 16 percent.
December 1 Purchased 400 units at Sh.5,600 per unit
1 Sold 40 units at sh.7,200 per unit
2 Bought stationeries worth sh. 5,000
5 Sold 80 units at Sh.7,200 per unit
10 Sold 200 units at Sh.7,200 per unit
20 Purchased 300 units at Sh.6,400 per unit
22 One of the customer who had purchased 20 units sold on 5th was declare bankrupt
24 Received a debit note for good purchased on 1st for sh. 100 per unit
25 Sold 80 units at sh.7,200 per unit
26 Issued a debit note for goods sold on 25th for sh. 300 per unit
31 Sold 200 units at Sh.8,000 per unit

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There was no inventory at the beginning of the month but 100 units were in stock at the end of the month.
Required:
The VAT account for the month of December 2022.

Tough Limited
VAT account for the month of December 2022
Date Detail Shs. Date Detail Shs.
Dec Purchases 16/116(400)(5,600) 308,966 Dec Sales 16/116(40)(7,200) 39724
1st 1st
2nd Stationeries 16/116 (5000) 690 5th Sales 16/116(80)(7,200) 79,448
th th
20 Purchases16/116(300)(6,400) 264,828 10 Sales 16/116(200)(7,200) 198,621
nd th
22 Bad debt relief 16/116(20x7200) 19,862 25 Sales 16/116(80)(7,200) 79,448
th th
24 Debt note received 5,517 26 Debit note issued 16/116(80x300) 3,310
16/116(400x100)
31st VAT payable 18,068 31st Sales 16/116(200)(8,000) 220,690
617,931 617,931
QUESTION FOUR
Jenga Engineers and Associates is a firm of engineers and designers. In the year of May 2020 they
earned professional fee of Sh.7,500,000 before VAT. Their accounts show the following expenses:
Sh.
Medical services 180,000
Accountancy and audit 225,000
Legal services 300,000
Design materials 1,600,000
Salaries and wages 2,410,000
Depreciation 985,000
Required:
(i) Value Added Tax Account for the month of May 2020
(ii) Comment on payment of VAT computed above.

Solution
Jenga Engineers and Associates
Value Added Tax Account for the month of May 2020
INPUT TAX OUTPUT TAX
Accountancy & Audit Professional fees
(225000 x 16%) 36,000 (Sh.7,500,000 x 16%) 1,200,000
Legal Services
(300,000 x 16%) 48,000
Design materials
(1,600,000 x 16%) 256,000
VAT payable 860,000
1,200,000 1,200,000

Notes:
1. Medical services are exempt hence do not attract VAT.
2. Salaries and wages and depreciation are not services provided for VAT purposes hence
not taxable.
ii) Comment on payment of VAT computed above. The VAT will be payable on or before 20th of June
2020

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QUESTION FOUR
Mrs. Carol Wasike is a practicing accountant working under the style and name of Wasike and
Associates. Her firm is registered for Value Added Tax (VAT). During the month of September 2022,
she undertook and completed the following assignments:
2 September - Tax consultancy work for ABC Ltd. her fees were sh.240,000
inclusive of VAT.
4 September - Audit for Rwandacell, a company based in Rwanda. Her fees
amounted to Sh.840,000 exclusive of VAT.
10 September - Management consultancy services for Kikwetu Ltd. She billed
them for sh.360,000 inclusive of VAT.
15 September - Her firm was appointed by XYZ Ltd. to undertake a review of the
internal control systems of the company. Her fees were
Sh.1,200,000 exclusive of VAT.
17 September - The firm conducted the audit of Kikwetu Ltd. for the year ended 31
December 2017. Charges were Sh.480,000 inclusive of VAT.
18 September - The firm was appointed by Stima Ltd to conduct a survey on power
consumption at a fee of Sh.2,400,000 (exclusive of VAT).
20 September - Her firm audited the accounts of Miracle Ministries, a church where
she serves as a volunteer auditor. She estimated that her fees would
have been Sh.720,000 exclusive of VAT.
25 September - The firm bill Kikwetu Limited Sh.136,000 (inclusive of VAT) for
debt collection services.
29 September - The firm undertook a financial consultancy assignment for
Worldnet South Africa, a company based in South Africa. The fees
were Sh.420,000 exclusive of VAT.

On 30th September 2022, the firm paid for the following services:

Electricity Sh.42,500
Water Sh.2,400
Rent Sh.120,000
Garbage collection Sh.36,000
Stationery Sh.960,000
Computer repairs and maintenance Sh.240,000
Telephone Sh.330,000
(where applicable, the above payments were VAT inclusive)
Required: Prepare a VAT account

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QUESTION FIVE
Wasike and Associates
VAT Account for September 2022
Date Input Date Output
Sh. Sh.
30-Sep Electricity 5,862 02-Sep ABC Ltd (16/116x240,000) 33,104
04-Sep Rwandacell (0%) 0
30-Sep Garbage 4,996 10-Sep Kikwetu Ltd. (16/116x360,000) 49,655
collection
30-Sep Stationery 132,427 15-Sep XYZ Ltd. (16%x1,200,000) 192,000
30-Sep Computer repair 33,107 17-Sep Kikwetu Ltd (16/116x480,000) 66,208
30-Sep Telephone 45,517 18-Sep Stima Ltd. (16%x2,400,000) 384,000
30-Sep Rent 16,552 19-Sep Miracle min. (16%x720,000) 115,200
25-Sep Kikwetu Ltd. (16/116x136,000) 18,759
30-Sep VAT payable 620,465 29-Sep Worldnet (0%) 0
858,926 858,926

DEDUCTION OF INPUT TAX

The deductibility of input tax is governed by the nature of supplies made which include;
i. Standard rate supplies input tax deductible
ii. Zero rated supplies –input tax deductible
iii. Exempt supplies –no input tax deductible.

Zero rated supplies

A zero rated supply means no tax is chargeable on the supply but such supply shall in all other respects be
treated as taxable at zero percent.
Zero rated supply shall be taken into consideration in determining whether a person making such a supply
is taxable and is required to register for VAT. A registered person making zero rated supplies will not
charge VAT on his supplies but will claim a refund of the whole amount of input VAT paid by him on
those supplies from the commissioner. The following supplies are zero rated:
i. All exports.
ii. The supply of goods or taxable services to EPZ.
iii. Supply of goods or taxable services to designated Foreign Aid funded capital investment projects.
iv. Supply of goods or services to any privileged person or organization e.g. diplomats, presidents,
armed forces canteen organization (AFCO).

Exempt supplies
An exempt supply is not regarded as a taxable supply and as such vat shall not be charged on it.
Further the value of exempt supplies shall be disregarded in determining the taxable turnover and the need
to register for vat.

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Input tax incurred with respect to exempt supplies is neither deductible, allowed to be carried forward for
claimed from the commissioner of vat. A person making exempt supplies only shall therefore bear the
entire burden of input tax.

Differences between zero rated supplies and exempt supplies

Zero rated supplies Exempt supplies

 Required to register for VAT  Need not register for VAT
 Required to issue tax invoice or z report  Need not to issue a tax invoice
(ETR) on all suppliers made
 Can claim input tax on purchase  Can’t claim input tax on purchases
Supply for both standard rate and exempt supplies
When a registered person makes all the supplies (standard rate, zero rate and exempt) the deductible input
tax shall be:

 The whole of the input tax if all the supplies are taxable or
 Such part of the tax that can be attributed to taxable supplies where any of the fraction of
the supplies are taxable
When a person makes all types of supplies the deductable input tax shall be limited to the proportion of
output tax that bears on the taxable supplies. A person can claim all the input tax provided the input tax
that relates to exempt supplies is always less than10% of the total input tax.
NB/ Input tax is deductible only where there is related or attributable output tax since there is no
output tax for exempt supplies input tax is not deductible.
The deductible input tax under this heading shall be derived as follows;-
Taxable suppliers (zero rate + std rate)
𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑏𝑙𝑒 𝑖𝑛𝑝𝑢𝑡 = 𝑥 total input tax
Total supplies (zero rate + std rate + exempt)

𝑉𝐴𝑇 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = 𝑂𝑢𝑡𝑝𝑢𝑡 𝑉𝐴𝑇 − 𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑏𝑙𝑒 𝑖𝑛𝑝𝑢𝑡 𝑉𝐴𝑇

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QUESTION SIX
The following transactions related to the business of Mr. Mark Makenzie for the year of income 2013:
Sh.
Wages 1,350,000
Purchases (zero rate) 150,000
Purchases (standard rate – 16%) 900,000
Purchased car from Japan 700,000
Sales at standard rate (16%) 2,400,000
Sales at zero rate 600,000
Exempt sales 900,000
Required:
Calculate the VAT payable by Mr. Mark Mackenzie for the year of income 2013.
Solution
Output tax
Sales at standard rate (16%) 2,400,000 16% 384,000
Sales at zero rate 600,000 0% 0
Exempt sales 900,000 NIL NIL
3,900,000 384,000

Input tax
Purchases (zero rate) 150,000 0% 0
Purchases (standard rate – 16%) 900,000 16% 144,000
Purchased car from Japan (after
700,000
duty) 16% 112,000
256,000
Taxable suppliers (zero rate + std rat e)
𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑏𝑙𝑒 𝑖𝑛𝑝𝑢𝑡 = 𝑥 total input tax
Total supplies (zero rate + std rate + exempt)

2,400,000 + 600,000
𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑏𝑙𝑒 𝑖𝑛𝑝𝑢𝑡 = 𝑥256,000 = 196,923
3,900,000

𝑉𝐴𝑇 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = 𝑂𝑢𝑡𝑝𝑢𝑡 𝑉𝐴𝑇 − 𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑏𝑙𝑒 𝑖𝑛𝑝𝑢𝑡 𝑉𝐴𝑇

𝑉𝐴𝑇 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = 384,000 − 196,923 = 187,077

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QUESTION SEVEN
Uhuru traders has provided you with the following details in respect of transactions for the month of
December 2022
Sh.
Dec-04 Purchases 580,000
Dec-08 Return outwards 46,400
Dec-12 catering expenses 69,600
Dec-15 Repairs of motor cars 23,200
Dec-18 Audit fees 20,800
Dec-20 imports (Cost, insurance and freight) 100,000
Dec-24 Sales (local) 1,904,800
Dec-27 Sales (export) 200,000
Dec-28 Exempt sales 280,000
Dec-30 Photocopying 9,280
Dec-30 Telephone bill 18,560
All transactions are inclusive of VAT at a rate of 16% where applicable
Additional information
1. Imports duty is at a 20% on cost insurance and freight (CIF) basis
2. A debtor of standard rated goods valued at sh. 40,600 was declared bankrupt on December 2022
Required
a. Output tax
b. Deductible input tax
c. VAT payable
Solution
Output tax
Dec-24 Sales (local) 1,904,800 16/116 262,731
Dec-27 Sales (export) 200,000 0% 0
Dec-28 Exempt sales 280,000 NIL NIL
Total Supplies 2,384,800 262,731
Bad debt relief 40,600 16/116 (5,600)
257,131
Input tax
Dec-04 Purchases 580,000 16/116 80,000
Dec-08 Return outwards 46,400 16/116 (6,400)
Dec-12 catering expenses 69,600 16/116 9,600
Dec-15 Repairs of motor cars 23,200 16/116 3,200
Dec-18 Audit fees 20,800 16/116 2,869
Dec-20 Imports (CIF plus duty) 120,000 16% 19,200
Dec-30 Photocopying 9,280 16/116 1,280
Dec-30 Telephone bill 18,560 16/116 2,560
112,309

𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑟𝑠 (𝑧𝑒𝑟𝑜 𝑟𝑎𝑡𝑒 + 𝑠𝑡𝑑 𝑟𝑎𝑡𝑒)

𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑏𝑙𝑒 𝑖𝑛𝑝𝑢𝑡 = 𝑥 𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑝𝑢𝑡 𝑡𝑎𝑥
𝑇𝑜𝑡𝑎𝑙 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑠 (𝑧𝑒𝑟𝑜 𝑟𝑎𝑡𝑒 + 𝑠𝑡𝑑 𝑟𝑎𝑡𝑒 + 𝑒𝑥𝑒𝑚𝑝𝑡)

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 1,904,800 + 200,000
𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑏𝑙𝑒 𝑖𝑛𝑝𝑢𝑡 = 𝑥 112,309 = 100,818.14
2,384,800

𝑉𝐴𝑇 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = 𝑂𝑢𝑡𝑝𝑢𝑡 𝑉𝐴𝑇 − 𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑏𝑙𝑒 𝑖𝑛𝑝𝑢𝑡 𝑉𝐴𝑇

𝑉𝐴𝑇 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = 257,131 − 100,818.14 = 158, 312.86

QUESTION EIGHT

Heritage interiors Ltd deals in sale of vatable goods. The company reported the following transactions for
the month of May 2022
Cash Purchases sh.
01-May-19 Furniture 174,000
05-May-19 Goods for sale 232,000
10-May-19 Stationery 58,000
Credit Purchases
10-May-19 Goods for sale 626,000
14-May-19 Audit services 145,000
16-May-19 Goods for sale 696,000
20-May-19 Electricity 104,400
The company reported the following sales during the month of May 2022
sh.
Credit sales 348,000
Cash sale 1,102,000
Additional information
1. The credit sales include goods exported to Rwanda amounting to sh.116,000
2. The company returned goods worth sh.34,800 to the suppliers during the month
3. Transactions are inclusive of VAT at rate of 16% where applicable
Required.
Determine the VAT payable or refundable for the month of May 2022
QUESTION NINE
The following transaction were reported by Kenfoam Trader for the month of November 2009. The
business is registered for VAT purposes.
02-Nov Made purchases at standard rate of Sh.180,000
04-Nov Received a debit not sh. 16,000 in relation to purchases made on 2nd November
10-Nov Made sales at standard rate for sh. 110,000
12-Nov Made sales at zero rate sh. 140,000
14-Nov Donated vatable goods worth sh. 15,000 to a local church
18-Nov Made purchases at zero rate for sh. 100,000 and at a standard rate for sh.170,000
20-Nov Purchases exempt supplies for sh.90,000
26-Nov Made sales as follows
Standards sales sh.240,000
Zero rates sales sh. 130,000
Exempt sales sh. 50,000
30-Nov issued credit notes sh 25,000 in relation to standard rated sales that was made on
26th November
The above transaction are stated exclusive of VAT where applicable
Required
VAT account for the month of November 2021 (ignore restriction on deductible input tax)
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QUESTION TEN
Zawadi Ltd is a Embu based company dealing in a variety of VAT designated goods. The following
transactions were recorded for the month of September 2022:
September
1: Paid rent sh. 80,000
5: Imported 10,000 units at Sh.80 per unit being cost, insurance and freight (CIF).
8: Purchased 5,000 units from the local market at Sh.60 per unit.
9: Returned 500 units of good purchased on 8th and received a credit note for the
amount
10: Sold 6,000 units at sh.90 per unit
11 The customers returned 400 units of goods sold on 10th were issued with credit note
by Zawadi Ltd
12: Purchased a motor vehicle for Sh.400,000 for use in the business
15: Paid Sh.10,000 for photocopy and printing of office documents.
16: Purchased stationeries for Sh60,000.
16: Paid an invoice for Sh.70,000 in respect of fuel for company vehicles. The fuel had
been used in August 2021.
18: Supplied 3,000 units to a department in the Ministry of Finance at a price of Sh.90
per unit.
20: Sold 2,000 units at Sh.85 per unit to a company in Uganda.
22: Purchased on credit 2,500 units locally at Sh.80 per unit.
27: Paid electricity expense of Sh.15,000 and telephone expense of Sh.9,000.
28: Paid salaries sh.120,000
The amounts stated above are inclusive of VAT at the rate of 16% where applicable, unless otherwise
specified. Assume the rate of import duty is 20%.
Required: The VAT account for the year month of September 2022.

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