VAT is a sales tax. VAT registration applies to all sole proprietors, partnerships, limited liability companies, or corporations that supply taxable goods and services.
if your annual turnover is over 5 million you are required or you qualify for VAT with the Kenya revenue authority.then if everything you sell is vat rated you should apply the vat at the rate of 16 per cent.
If you are registrable and fail to register, the Commissioner may register you compulsorily and retrogressively from the date you became due for registration and you shall be liable to a default penalty of Kshs.100,000/=.The Act provides for voluntary registration where a taxpayer wishes to be registered despite the turnover falling below Kshs.5,000,000/=(according to KRA website)you can apply for VAT online through the KRA website.
You are required to pay KRA all the VAT you collect on your sales but here its where it gets sweeter; SMEs must be keeping good records of all purchases, costs, and expenses. VAT is also recoverable tax thus you can claim back your vat paid out.
The difference between the VAT collected on your sales and the VAT paid out on purchases, costs, and expenses is what is paid to KRA by the 20th day of every month.
If you paid more VAT out, KRA should refund you the money. It is common to have businesses paying out more, which is why it is important to recover your VAT paid out.
If you were paid more VAT than you paid out, you should pay that money to KRA by the deadline.
If your VAT-in and VAT-out are equal or did not transact in a month, you should file a nil return.
It may sound simple, but many SMEs need to keep very good sales, purchases, costs, and expenses records to effectively manage VAT.It is recommendable to have an accountant or a tax auditor to help you understand more.
Many people mainly in the SMEs sectors tend to avoid tax but one day when the taxman is around you will have to face him and it would not be a friendly talk.
Always be sure you are keeping an eye on every business compliance.Its always better to be safe.