VAT is an indirect tax that is paid by the person who consumes taxable goods and taxable services supplied in Kenya and/or imported into Kenya.
VAT on goods and services supplied in Kenya is collected at designated points by VAT registered persons who act as the agents of the Government. VAT on imported goods and services are paid by the importer.
Any person supplying or who expects to supply taxable goods and taxable services with a value of Kshs 5 Million or more in a year is required to register for VAT. Where a person has not attained the Kshs 5 Million threshold, voluntary registration can be granted subject to conditions.
VAT registered persons are identified with Personal Identification Numbers (PINs) with a VAT obligation.
Every VAT registered taxpayer is required to on-board on eTIMS by signing up through https://etims.kra.go.ke and sending service request. Alternatively, taxpayers can visit any KRA Tax service office or eTIMS operation unit located at JKUAT building 8 th floor, along Kenyatta Avenue to seek help.
VAT works under the Input / Output Tax system.
Input tax refers to a tax paid by a registered person on purchase of goods or services for the purpose of his business.
Output tax refers to tax charged on the sales of taxable goods or services. Tax payable is the difference between the Output tax and the Input tax.
Output Tax – Input Tax = Tax Payable
Example of VAT calculation
PURCHASES
Kshs
Purchase net price
Gross purchase price
11,600
SALES
Gross purchase price
Net Purchase price
10,000
Add 20% profit margin
Net Sales Price
1,920 (Out Put Tax)
Selling Price
13,920
Tax payable
1920 -1,600 = 320
Note: Withholding VAT credits and Excess Input Tax brought forward can be applied against Tax payable.
There are two (2) tax rates:-
Note: 8% (Other rate) – This rate applied to certain supplies (petroleum products) prior to 1 st July 2023 but was deleted by the Finance Act, 2023.
Exempt supplies are not taxable supplies and any related input tax is therefore not deductible. Exempt supplies are listed in the First Schedule to the VAT Act 2013. Taxpayers who only make exempt supplies are not required to register for VAT.
VAT is due on or before the 20 th day of the following month. This includes both the return and payment. Returns are submitted online via iTax (https://itax.kra.go.ke).
This is an invoice issued by a registered person and contains details of the sale transactions including the VAT charged.
Only one original invoice, credit note or debit note should be issued on a particular supply. A certified copy clearly marked as so may be issued to a registered person claiming to have lost the original.
A tax invoice should be serially numbered and generated from eTIMs. In case of returned goods or a valid reduction of the value of the supply by the registered person after issuance of an invoice, a credit note shall be issued.
A credit note is issued within six months after the issue of the relevant tax invoice.
Registered persons are entitled to input tax deduction at the end of the tax period in which the taxable supply or importation occurred.
Input tax deduction is valid for only six months after the end of the tax period in which the supply or importation occurred.
Input tax deductions can only be made for supplies or importation acquired to make taxable supplies and the registered person must be in possession of valid documentations to support the input tax.
Any excess input tax is carried forward and deducted in the subsequent tax period or may be refunded to the taxpayer if the excess input tax arises from
VAT registered persons are required to maintain proper records to support all transactions. These records may be maintained electronically.
Tax point is the time when tax becomes due and payable. This is determined by the EARLIEST of the following: -
Non-resident persons making supplies in Kenya over the internet or an electronic network or through a digital marketplace are required to register for VAT whether or not the taxable supplies meet the annual turnover threshold of KES 5 million.
A simplified registration, filing and payment system has been developed for the suppliers.
N/B: Upon application for deregistration, the taxpayer, executor, liquidator or any person conducting the business should continue submitting returns until advised to stop.
The system will generate a Payment slip which you will download and use to make the payment. A copy of the payment slip is sent to the taxpayer’s registered email address.
Make Payment through any of the following methods
The VAT (Electronic Tax Invoice) Regulations, 2020 gazetted on 25th September 2020 (Legal Notice No 189) introduced the implementation of the electronic tax invoice in Kenya.
The electronic tax invoice refers to an invoice generated from a compliant/upgraded Electronic Tax Register (ETR) or from the eTIMS system. KRA introduced eTIMS, which is simple, affordable, flexible and convenient. eTIMS is a software solution which provides technological convenience to meet taxpayers’ compliance needs. eTIMS can be accessed through various electronic devices including computers and mobile phone Apps, making it more convenient, user-friendly and flexible for businesses to use.
What is VAT Special Table?
It is a mechanism implemented in iTax to enhance VAT compliance where certain categories of VAT registered taxpayers are restricted from performing certain processes. The following are categories so far on boarded on the special table:
Nil filers and Non-filers – This refers to Taxpayers who have either not filed returns or have consecutively filed NIL returns for a specified period. Missing Traders – This refers to taxpayers who are filing and paying VAT but on investigation were found to be involved in VAT fraud relating to ‘missing trader’ schemes
What are the benefits of the VAT Special Table?
The VAT special table bears the following benefits for traders:
What happens when a Taxpayer is on-boarded on the VAT Special Table?
Note : Penalties will not be charged for non-filling of VAT returns as a result of on boarding of a taxpayer on the VAT special table.
The affected taxpayers will be required to contact their Tax Service Office for guidance on removal from the VAT Special Table. KRA has released additional guidelines for taxpayers onboarded on the VAT special table.
VAT on imported services may also be referred to as Reverse VAT.
Imported services are services provided by non-resident persons who are not required to register for VAT in Kenya. They may also be services provided by Export Processing Zones (EPZ's) for use or for consumption in Kenya.
Any importer of an imported service irrespective of his VAT registration status is liable to pay VAT on the imported service (Reverse VAT).
The importer must register for a KRA PIN to be able to generate an e-slip (payment slip) via iTax and use it to pay the tax using the preferred mode of payment.
VAT on imported services is due and payable at the time when:
Tax paid on imported services for use in the registered person's taxable business may be deducted as input tax in subsequent VAT returns.
Withholding VAT is charged at a the rate of 2% of the value of taxable supplies with effect from 07/11/2019.
No VAT is withheld on exempt goods, exempt services and Zero rated supplies.
Any VAT withheld in exempt and Zero rated supplies is treated as tax paid in error and therefore refundable by the Commissioner.
Withheld VAT is remitted by appointed withholding VAT Agents to the Commissioner on the 20th day of the month following deduction.
The payments are made online via iTax.
A taxpayer whose VAT has been withheld is still required to submit an online VAT return and account for the VAT balance