Calculating VAT in A SIMPLIFIED WAY<< Back

A. ASSUMPTION

A1. A trader takes delivery of goods after all taxes from customs or local supplier.

A2. The goods including taxes and VAT are worth Shs. 100,000/=.

A3. The trader adds a mark-up (profit) to cover all expenses, profits and VAT of 18% to arrive at the selling price.

A4. It is assumed that the BUSINESS INPUTS such as telephone, water, electricity and consumable are included in the mark-up in A3 above.

A5. The VAT rate is 18%.

B1. The total value of the goods (in general) if inclusive of VAT has three elements namely:

(a) The cost element before VAT which is 90%;

(b) Value added of say 10%

B2. The total value is therefore made up of COST plus Value Added plus VAT which is (90% + 10% = 18%) = 118%.

B3. In order to identify the VAT element in the total value, the VAT fraction is used. This VAT fraction is as follows:

The VAT RATE divided by COST plus Value Added plus VAT RATE which is:

18% or 18
(90% + 10% + 18%) 118

The trader only needs to remember the VAT fraction in B3 above.

C. Using the example in above (A) to calculate vat:

C1. The objective is to get the net VAT payable to URA or refundable to the trader by URA.

C2. The net VAT payable is the difference between the VAT calculated on SALES, and that on purchases.

C3. If the VAT on SALES is greater than the VAT on PURCHASES, then the TRADER pays URA the VAT on sales in excess of the VAT on purchases.

C4. If the VAT on SALES is less than the VAT on PURCHASES, then URA refunds the TRADER the VAT on purchases in excess of the VAT on sales.

C5. If the trader buys goods at Shs. 100,000/= inclusive of VAT, with a 10% mark-up, the selling price becomes Shs. 110,000/=.

C6. The VAT on SALES and that PAYABLE to URA can be computed as follows:

	Total Value with VAT(Shs)	VAT Fraction (Shs)	VAT Calculated (Shs)
Selling Price	110,000/-	18/118	16,779/-
Purchases Cost	100,000/-	18/118	15,254/-
VAT PAYABLE TO URA	10,000/-	18/118	1,525/-

C7. Checking the computation in C6

	Value without VAT	VAT rate	VAT (shs)	VAT Burden (%)	Value with VAT
Purchase Cost	84,746	18%	15,254	91%	100,000
Value added (10%)	8,475	18%	1,525	9%	10,000

Selling price
Purchase Cost Plus Value Added	93,221	18%	16,779	100%	110,000

C8. Because the TRADER paid Shs. 15,254/- VAT on the purchases, and this was received by URA from the supplier, the VAT he collects and passes on to URA is only that on Value Added, that is Shs. 1,525/-.

Total VAT collected at the two levels of the trader’s supplier and his own sales from value added totals Shs. 16,779/-.

Value added is the Input of a trader in terms of labour, packaging, display, transport, etc incurred to bring the goods to a new sellable state. It is therefore, the sum total of mark up plus overheads plus value of the work on the new products.

D. Keeping simple business records for vat purpose

D1. It should be emphasized that VAT does not need a complicated accounting system. VAT relies on SALES and PURCHASES. Only two files (BOXES) are required, namely:
(a) a SALES file (BOX) in which all sales Tax invoices are kept; and

(b) a PURCHASES file in which all purchases Tax Invoices are kept.

These are the records that would be checked by VAT inspectors. In a nutshell,on the left hand side, keep your sales records; on the right hand side keep your purchase records.

D2. In the above example, the TRADER recovers the VAT paid at purchase of Shs. 15,254/-, and VAT charged on his value added (Shs. 1,525/-) from the Customer. The Customer pays the total Shs. 16,779/- (15,254/- + 1,525/-) over and above the principle sum.

E. The wrong way of calculating vat

E1. The example below shows Mukasa calculating VAT in a Wrong way.

TOTAL (SHS)
Selling Price 110,000/-
VAT (18%) 19,800/-
TOTAL 129,800/-

E2. Calculating VAT as in the above example is wrong. Instead of the whole system paying URA VAT of Shs. 16,779/- only, the system would pay Shs.36,579/- (16,779/- + 19,800/-) because 18% is applied on another 18%.

DOMESTIC VAT FOR NON–VAT REGISTERED IMPORTERS

15.01 WHAT IS DOMESTIC VAT?

Domestic VAT is VAT charged on goods whose value is four (4) million shillings and above imported by non VAT registered persons.

15.02 WHEN DID DOMESTIC VAT COME INTO EFFECT?

Domestic VAT came into effect 1st March 2002.

15.03 WHO HAS TO PAY DOMESTIC VAT?

The importer who meets the following criteria;-

The importer who is not VAT registered.
The CIF value (as determined by Customs) of the goods is 4 million shillings and above.
The goods must be standard rated.
The goods are not personal effects or motor vehicles.

15.04 WHEN IS DOMESTIC VAT PAID?

Domestic VAT is paid at Customs Entry point together with the other customs taxes at the designated banks.

15.05 ON WHAT VALUE IS DOMESTIC VAT CHARGED AT IMPORTATION?

The value is computed by applying a 15% mark up on the Customs VAT value. The mark up is the expected value added between the stage of importation and sale. The customs VAT value is the value on which VAT at Customs is computed. The Customs VAT value is the sum total of CIF (cost, insurance and freight), import duty and excise duty. Domestic VAT is 18% of the 15% mark – up.

15.06 IF I AM VAT REGISTERED DO I PAY DOMESTIC VAT?

Domestic VAT is only paid by persons who are not VAT registered.

15.07 IF I AM VAT REGISTERED CAN I DE-REGISTER AND PAY ONLY DOMESTIC VAT?

The VAT law makes it mandatory for all persons whose turnover in any three months is 12.5 million shilling and above to register for VAT. Therefore, if you meet this criterion you can not deregister.

EXAMPLE OF COMPUTING DOMESTIC VAT

	SYMBOL USED IN THE CALCULATION	CALCULATION	VALUE
CIF (cost, Insurance & freight)	A	A	4,000,000
25% Import Duty	B	B= A X 25%	1,000,000
Excise Duty Value	C	C = A + B	5,000,000
10% Excise Duty	D	D = C X 10%	500,000
Customs VAT Value	E	E = C+ D	5,500,000
18% Import VAT	F	F = E X 18%	990,000
Domestic VAT Value	G	G = E X 15%	825,000
18% Domestic VAT	H	H = G X 18%	148,500
6% Withholding Tax	I	I = A X 6%	240,000

Total Taxes

Import Duty	1,000,000
Excise Duty	500,000
Import VAT	990,000
Domestic VAT	148,500
Withholding Tax	240,000
Total	2,878,500

DISCLAIMER: This Information is strictly for purposes of guidance to our clientele and is subject to change on amendment of tax legislations & any other regulations that govern tax administration.