• A site by BDO Kenya
  • Value Added Tax

Overview

Value Added Tax (VAT) is a consumer tax charged on the supply of taxable goods or services made in Kenya and on the importation of taxable goods or services into Kenya. The rate for VAT is either 0% or 16%. All traders who have a turnover of taxable supplies of KES 5 million per annum and above are required by law to register for VAT, and then 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, though there are provisions for voluntary registration even when a trader is below the KES 5 million threshold.

Any non-resident person who qualifies for VAT registration but does not have a fixed place of business in Kenya must appoint a resident person as his tax representative for VAT compliance purposes. Should he not do this, the Commissioner has authority to appoint the tax representative for the non-resident person.

Value Added Tax

VAT is charged on the following:

  1. A taxable supply made by a registered person in Kenya;
  2. On importation of taxable goods and services.

 

VAT registration is mandatory for any person who has made or expects to make taxable supplies the value of which exceeds Ksh 5 million.

Once a taxpayer is registered for VAT obligation monthly returns must be filed irrespective of whether there are transactions or not. A person who is required to apply for registration but who does not have a fixed place of business in Kenya shall appoint tax representative in Kenya, who will be responsible for administration of the recording and accounting of VAT.

There are main categories of supplies in Kenya:

  1. Zero rated supplies- are taxable supplies but whose rate of tax is zero. This applies mainly to exports;
  2. Exempt supplies – are non-vatable supplies mainly food items, medical and agricultural supplies;
  3. The remainder of supplies taxable at the general rate currently 16%.

 

Supplies are accounted for in a tax period which is a calendar month and the VAT system in Kenya works on the output- input model of sales (output VAT) and purchases (input VAT).

An importer of taxable services in Kenya shall be deemed to have made a taxable supply to himself and VAT shall be charged on such supplies – called reverse VAT. The burden of tax is on the importer. However where a business’s supplies are 100% vatable reverse VAT will not apply.

The tax point for accounting for VAT in a tax period shall be the earlier of:

  1. The date the supplies are delivered;
  2. The date on which the invoice is issued;
  3. The date a certificate is issued for construction services;
  4. The day on which payment for supply is received.

 

The taxable value of a supply shall be determined as follows:

  1. The consideration of the supply;
  2. The open market value of the supply if the supplier and recipient are related.

 

In computing the taxable value the following shall be excluded:

  1. Disbursements made to third parties;
  2. Financial charges payable under hire purchase agreements;
  3. Interest incurred for late payment of the consideration for the supply.

 

The following supplies shall be prohibited for input VAT deduction.

  1. Acquisition of passenger cars or minibuses  and all attendant costs (subject to some conditions);
  2. Entertainment, restaurant and accommodation services unless incurred when out of work station on official business.

 

Input VAT deduction shall be allowed but not more than six months from the date of supply. It must be supported by an original or certified copy of the invoice and electronic tax receipt (ETR). Every registered person shall maintain an Electronic Tax Register to record sales. All sales whether vatable, zero rated or exempt shall be recorded in the register. 

Where in a period input VAT exceeds output VAT the excess shall be carried forward to subsequent months until fully exhausted without any limitations.

Where the excess input VAT arises from making zero rated supplies the excess shall upon application in a prescribed form be refunded to the taxpayer.

Where supplies have a mix of both taxable and exempt supplies, the input VAT shall be apportioned to reflect the amount attributable to taxable supplies.

VAT returns and payments shall be submitted on or before the 20th of every month. Submissions shall be done via the online platform called i-tax.

Where a taxpayer is unable to file his return within the due date he may apply to the Commissioner for extension. The application must be submitted before the due date.

Every registered person shall keep records of his business in English or Kiswahili language for a period of 5 years and shall avail such records for inspection upon a written request from the revenue office.