Value Added Tax (VAT) Accounting SOP Sasini VAT Standard Operating Procedure
TABLE OF CONTENTS 1.0 EXECUTIVE SUMMARY... 2 2.0 PROCEDURE... 4 3.0 INPUT VAT... 4 4.0 Input VAT Invoice Posting... 5 5.0 Input VAT Summary Report... 5 6.0 Administrative Expenses VAT (VAT for Imported Services)... 6 7.0 OUTPUT VAT... 6 8.0 Output VAT Invoice Posting... 7 9.0 Output VAT Summary Report... 7 10.0 VAT Reconciliation... 7 11.0 Filing... 8 12.0 APPENDICES... 8 13.0 REVISION HISTORY... 10 Sasini VAT Standard Operating Procedure Page 1
1.0 EXECUTIVE SUMMARY Document ID Title Print Date SASINI VALUE ADDED TAX ACCOUNTING SOP Revision Prepared By Date Prepared VINCENT ONYANGO Effective Date: Reviewed By Date Reviewed Approved By Date Approved Applicable Standard: PURPOSE: To ensure policy pertaining to filing of VAT returns are adhered to and are executed as per the law. SCOPE: This SOP covers Sasini own coffees, retail, coffee mill, Mweiga, Kipkebe and Keritor. DEFINITION OF TERMS The following terms are used herein; Value Added Tax; It is tax levied on consumption of taxable goods and services supplied or imported into Kenya and is collected by registered persons at designated points who then remit it to the Commissioner. VAT 3 Form; This is a form used for filing returns. VAT 3b: This is a form used for launching a claim from KRA. VAT 28 Form; This is a form for filing returns for imported services. DUTIES AND RESPONSIBILITIES Finance Manager; He reviews and approves VAT payment. Senior Account AP/AR; Responsible for filing VAT returns. Purchasing Department; Responsible for making an order. Sasini VAT Standard Operating Procedure Page 2
INTRODUCTION Value Added Tax is charged on supply of taxable goods or services made or provided in Kenya and on importation of taxable goods or services into Kenya. VAT returns are due on 20 th of every month. Sasini has adopted the policy of filing its VAT returns on 18 th of every month. Taxable goods and services are contained in the various schedules of the VAT Act. All goods and services are taxable except those excluded through the second and third schedules respectively. The VAT Act constitutes the following schedules: - i. 1 st Schedule -Part1-Specifies the general rate of tax which is 16% -Part 11-Taxable goods at the rate of 12%. ii. 2 nd Schedule EXEMPT GOODS- (Non-Taxable Goods) Goods that are not taxable. All other goods outside this schedule are taxable at 0%, 12% or 16%. iii. 3 rd Schedule -Lists the EXEMPT SERVICES. (Non-taxable Services) Services outside this list are taxable at either 0% or 16 % iv. 4 th Schedule Repealed by Finance Act 2007 v. 5 th Schedule -Part A--Zero-rated Supplies. These are supplies which attract VAT at 0% Part B--Zero-Rated goods. These are specific goods which attract VAT at 0% Part C- Additional Zero rated goods. Sasini VAT Standard Operating Procedure Page 3
2.0 PROCEDURE VAT is usually classified into two namely; input and output. 3.0 INPUT VAT 3.1 It all begins with the purchasing department at the point they make an order. On delivery, quantity and VAT is confirmed to ensure that it is as per the supplier s invoice. 3.2 Processing of the invoices are done at estate levels that is, for Kipkebe and Mweiga. Mweiga CAPEX and Mugumo house building are posted at HO while Sameer Management invoice is posted at HO in the case of Kipkebe. However, in the case of Sasini most of the invoices are posted at HO. 3.3 Invoice items include; Net amount, VAT and total invoice value. The ledger entries as follows; Dr. Expense a/c. e.g. (Stationery- 30117 Sasini a/c.) Dr. VAT Control a/c. 6132472 Cr. Supplier 3.4 Aggregate all the input VAT summary of HO and cash purchases from Sasini Retail and coffee sales. In the case of Kipkebe, the VAT is from warehouse Mombasa, HO in the case of management invoices, cash purchases and estate invoices. Sasini HO charges VAT for Sameer Management fee and Sameer Investment while Mweiga s invoices are from cash purchases. 3.4 Compute the invoice amount as shown below: Invoice Amount=VAT element *100 VAT Rate 3.5 Verify the accuracy of VAT by cross examining the dates, invoice no, pin no, suppliers no, invoice description. Based on the description, certain items are treated as disallowed VAT e.g. sugar for office use, staff vehicles repair. 3.6 Disallowed VAT is expensed and the entries passed are; Dr. Expense a/c. Cr. VAT control a/c. 6132472 (This is at the point of reconciliation) Sasini VAT Standard Operating Procedure Page 4
Note: At the end of the month a VAT summary for both estates and HO is extracted from the system and exported in excel format, cash purchases is added (for all estates) 3.7 The VAT is now ready for filing this point. 4.0 Input VAT Invoice Posting 4.1 The procedure in the system is as follows; Bills Management (BMS) Transaction Payables Step I Click add Select category, supplier Punch invoice no. Write narration Step II Select the a/c. to debit Punch the amount (Net) Specify the cost centre-coffee 5.0 Input VAT Summary Report 5.1 This is generated as follows; Step III In the case of VAT Click on additional charge Select 16% then click OK. Click save and close Bills Management (BMS) Reports Tax Report VAT Summary Export to excel to aggregate with cash purchase from Sasini Retail Preview VAT input summary Choose the location and adjust the dates for the entire month (ensure it is input) Sasini VAT Standard Operating Procedure Page 5
6.0 Administrative Expenses VAT (VAT for Imported Services) 6.1 This is normally used for securing foreign services. It is only applicable to Kipkebe Ltd. 6.2 W.P. H Kenya Tea Ltd submits quarterly invoices charged at USD 20,000 which is equivalent to 80%. To compute VAT net at 100% this is equivalent to USD. 25,000 then VAT is charged at @ 16% then converted to prevailing exchange rate which is then paid to Commission of VAT 6.3 The filing of administrative expense VAT is done in VAT 28 Form Note: This VAT is posted in the VAT control a/c. and claimed together with other input VAT. 7.0 OUTPUT VAT 7.1 Output VAT can take the form of vatable or Zero rated (Kipkebe, Sasini Ltd) and exempt (in the case of Mweiga). Keritor also has a vatable VAT. 7.2 Sales for that particular month are what are declared as output VAT for instance, in the case of Kipkebe the tea sales. 7.3 In Kipkebe what is declared as an output is the tea sales at the auction and what is exported that is in the case of zero rated, vatable are other income from Sotik e.g. Factory door sales, scrap sales and warehouse charges and handling income from Mombasa. In the case of Sasini what is vatable is the retail sales, zero rated include; the coffee sold at the auction through coffee mill. In Mweiga vatable sales include yoghurt, cash sales while exempt in Mweiga include livestock and horticulture, Zero rated include; milk, other products and coffee. Under Wahenya, what is zero rated is the coffee sales, small cash sales, inter estate sales e.g. renting of tractor. Keritor raises a lease invoice to Kipkebe every month and this amount is constant hence the VAT. This varies depending on whether there is an input for that particular month for example in the case of auditing which reduces the amount payable. In case there is no input VAT the amount remains the same Ksh. 65,692 which is paid to Commission of VAT every month. Keritor is normally in a paying position to Commission of VAT. Sasini VAT Standard Operating Procedure Page 6
8.0 Output VAT Invoice Posting 8.1 The procedure in the system is as follows; Bills Management (BMS) Transaction Receivables Step I Click add Select category, debtor Punch invoice no. Write narration Step II Select the a/c. to credit Punch the amount (Net) Specify the cost centre-coffee Step III In the case of VAT Click on additional charge Select 16% then click OK. Click save and close 9.0 Output VAT Summary Report 9.1 The report is generated as shown below; Bills Management (BMS) Reports Tax Report VAT Summary Export to excel Preview VAT output summary Choose the location e.g. retail and adjust the dates for the entire month (ensure it is output) Note. In case of sales returns select input then preview and export to excel then tick the sales returns. Note. If input is more than the output then claim if otherwise you pay 10.0 VAT Reconciliation 10.1 This involves comparing what is in VAT in monthly returns and the monthly figures in the control a/c. This should be the same however; due to disallowed items at the point of filing returns the figures might vary hence the need for reconciliation. Sasini VAT Standard Operating Procedure Page 7
11.0 Filing 11.1 Manual filing is done by filling in VAT 3 form. 11.2 Get the difference between output and input then less the credit balance from the previous year Note Claimable VAT items change as per the central government regulation (See appendices). 12.0 APPENDICES 12.1 A sample of VAT 3 Form 12.2 A sample of VAT 3b Form 12.3 A sample of VAT 28 Form 12.4 A sample of claimable VAT Items Sasini VAT Standard Operating Procedure Page 8
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13.0 REVISION HISTORY Revision Date Description of changes Requested By Initial Release Sasini VAT Standard Operating Procedure Page 10