Value Added Tax
Indirect Tax
Value Added Tax
Syllabus tag: KASNEB CPA | Advanced Level | CA35S1 Advanced Taxation
1. Overview of Kenya VAT
VAT in Kenya is governed by the Value Added Tax Act 2013. It is an indirect tax charged on the supply of taxable goods and services. The current standard rate is 16%. VAT is collected at each stage of the supply chain, with businesses acting as collecting agents for the KRA.
2. Registration threshold
A person making taxable supplies must register for VAT when taxable turnover exceeds or is likely to exceed KES 5,000,000 in any 12-month period. Voluntary registration is permitted below the threshold.
3. Types of supply
Standard-rated supplies: taxable at 16% — output VAT is charged; input VAT on related purchases is recoverable.
Zero-rated supplies (0%): taxable but at 0% — output VAT is KES nil; input VAT on related purchases is fully recoverable. Examples: exports of taxable goods, supplies to tourist facilities, basic foodstuffs (maize flour, wheat flour, milk, bread, salt, sugar — within prescribed limits).
Exempt supplies: not taxable — no output VAT; input VAT on related purchases is not recoverable. Examples: unprocessed agricultural produce, financial services, insurance services, residential rental, medical services, educational services, petroleum products (now standard-rated — confirm current status).
4. Output VAT, input VAT, and net position
Output VAT = Standard-rated sales × 16%
Input VAT = VAT paid on taxable purchases and imports
If Output VAT > Input VAT → VAT payable to KRA
If Input VAT > Output VAT → VAT refund due (or carry forward)
Input VAT is only recoverable on purchases used in making taxable supplies (standard-rated and zero-rated). Input VAT on purchases attributable to exempt supplies is not recoverable. Where inputs relate to both taxable and exempt supplies, a partial exemption apportionment is required.
5. Time of supply (tax point)
For goods: the earlier of the invoice date or the date of delivery. For services: the earlier of invoice date or date of performance. This determines which VAT period a supply falls in.
6. VAT returns and payment
Monthly VAT returns must be filed and tax paid by the 20th of the following month. Electronic filing through iTax is mandatory.
7. VAT refunds
A VAT refund claim arises where input VAT exceeds output VAT (e.g. a predominantly zero-rated exporter). The taxpayer files a refund claim; the KRA has 90 days to verify and pay. Delays beyond 90 days attract interest at the rate prescribed by the Tax Procedures Act.
8. Reverse charge
Where a Kenyan recipient of services imports services from outside Kenya and the supplier has no establishment in Kenya, the recipient must self-account for VAT under the reverse charge mechanism — declaring both output and (if applicable) input VAT on the same return.