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The
amendment to the VAT Act deletes non-residential buildings
from the list of exempt services. The amendment defines
residential buildings as "dwellings built or used to
accommodate persons for residential purposes".
"Presumably,
any building that is not residential as defined would fall
under the expression nonresidential even though that
expression is not defined," says tax lawyer Atiq
Anjarwalla of Anjarwalla & Khana Advocates, adding
that the lack of a clear definition was a major flaw as it
leaves a lot of room for speculation.
"How
will for example, a residential building that has an annex
that is used for business be classified as?" he
poses. Owners of non-residential buildings who are not
registered for VAT and who have an aggregate annual
turnover in respect of taxable goods and services of Sh5m
or more will now from next year be required to register
for VAT under section 27 of the VAT Act.
"Property
owners should ensure that their leases allow them to pass
on any VAT obligations as rent to their tenants,"
advises Atiq.
The
new provisions that have passed with the passing of the
Finance Bill, state that a person being the owner of land,
or building on land situated in Kenya, fails to make
payments of tax due from him on or before the due date or
fails to comply with a notice served on him, the
Commissioner of Tax may proceed to realize the instrument
of mortgage or charge to redeem the tax arrears.
Subsequently,
the Commissioner, as a mortgagee or a chargee, may
transfer the land or building which is the subject of the
mortgage, to any purchaser and pass on the title. This
means that from January next year, land lords and land
owners who default on their tax returns will have their
land or buildings sold by the tax man to recover the
unpaid tax.
Currently,
when an owner of land or buildings fails to pay tax due
and payable under the VAT Act, the Commissioner, by a
written notice, informs that person of his intention to
apply to the Registrar of Lands for the land or buildings
to be the subject of security for tax of an amount
specified.
If
a person on whom a notice has been served under this
section fails to pay the whole amount specified in the
notice within 30 days of the date of service of the
notice, the Commissioner may by another notice direct the
Registrar of Lands that the land and buildings, to the
extent of the interest therein, be the subject of security
for the tax of a specified amount.
The
Registrar shall, without fee, register the direction as if
it were an instrument of mortgage over, or charge on, as
the case may be, the land and buildings and upon that
registration shall, subject to any prior mortgage or
charge, operate while it subsists in all respects as a
legal mortgage over or charge on the land or buildings to
secure the amount of the tax.
The
new amendments mean that from tenants will have to pay
higher rent as landlords are set to pass the costs down to
them to avoid falling foul of the Act.
"The
upside is that the government's revenue will increase and
hopefully translate into better services being offered to
the tax payers," says Atiq "but services such
and Banks and Hospitals which do not pay VAT on their
rental premises will now have to pay, and this might have
to be pushed to the consumers making the services more
expensive".
Source
: AllAfrica.com - Washington, USA, dated 23/10/2007
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