Value Added Tax

Value Added Tax (VAT) is a multi-stage consumption tax that is applied to the sale of goods and services at all stages of the production and distribution chain. The tax is charged on the supply of taxable goods or services made in Kenya and on the importation of taxable goods or services into Kenya. The tax is collected by traders and remitted to KRA, but the tax burden is shifted to consumers through higher prices. All traders who have a sales turnover of Kshs. 5 million per annum and above are required by law to register for VAT. After registering for VAT, the traders are obliged to collect and remit VAT on their taxable supplies, with an allowance to recover tax paid on their purchase of inputs. Only registered traders are required to charge VAT.

Under the VAT Act, there are three different classes of goods and services: designated; zero-rated; and exempt goods and services. Designated goods and services are those that are taxable at the VAT standard rate (currently 16 percent). The term zero-rating is used in the VAT Law to refer to supplies of goods and services that are subject to tax but taxable at the rate of zero percent. Zero-rated supplies are considered to be taxable supplies, only that they are taxed at a rate of zero. Only suppliers who deal with VATable goods and services can request for VAT refund on their inputs. The zero-rating concept was introduced in the VAT system to enable exporters, manufacturers and suppliers of zero-rated goods and services to claim for refund of tax paid on their inputs. Exempt supplies are not taxable and do not form part of the taxable turnover. Persons who deal exclusively in exempt supplies are not liable to register and cannot claim input tax on these supplies.

VAT, like all consumption taxes, is considered to be highly regressive i.e. the poor bear a greater tax burden as compared to the rich. But the design of the VAT in Kenya has made it less regressive, mainly through exempting and zero-rating of basic commodities, especially foodstuffs. This implies that the commodities that are considered basic and are consumed by the poor are exempted from the VAT or zero-rated.

When is VAT due and payable?
In the case of a registered VAT taxpayer, the due date is 20th of every month, irrespective of whether or not the trader has been paid by his/her debtors. However, the trader can claim back the VAT as bad debt if the debtor fails to pay him within a period of three years from the date of supply, or the debtor becomes insolvent. Failure to submit a return and pay the tax due by the due date is liable to a penalty of KShs. 10,000 and an additional tax/interest of 2 percent per month on the unpaid tax.
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