- What is VAT?
- What is the VAT rate in Kenya?
- What goods and services is VAT charged?
- How is VAT collected?
- Can you de-register from VAT?
Q. What is VAT?
Value Added Tax (VAT) is charged by businesses at the point of sale of goods and services sold in Kenya. Basically it is a tax on consumer spending. The Kenya Revenue Authority (KRA) is responsible for collecting, recording and reporting value added tax levied on goods and services purchased in Kenya.
The standard Value Added Tax rate in Kenya in accordance to current Value Added Tax (VAT) Law is 16%.
Value Added Tax is an indirect form of tax levied on most goods and services purchased and is borne by the final consumer of the goods and services. Basically, it is the difference between what a producer pays for inputs e.g. raw materials and advertisements, and what they charge for the finished goods.
It replaced Sales Tax in January 1990. Then, only the manufacturing and imports level were liable to paying the tax and VAT was introduced to increase Kenya's tax base to provide additional revenue to fund government coffers. VAT amounts levied and remitted to the tax body help fund the devolved governments' spending, infrastructure projects and other areas of public interest such as the public health and education sectors.
Q. What is the VAT rate in Kenya?
The standard Value Added Tax rate in Kenya is 16% in accordance to the VAT Act. The VAT Act Amendment of 2014, guides what ultimately ends up as Vatable amount (original amount before VAT is added), the actual VAT amount (the standard 16% of the Vatable Amount) and total amount.
The latest amendment serves to protect low income citizens against the rising cost of living and replaces the earlier VAT Act (Amendment) of 2013 passed by the National Assembly. Under the new law, some goods and services were added to the list of exempt supplies (non-taxable) and some others that were previously exempt, are to become taxable at 16% subject to the terms supplied in the Act.
For example, food processed specially for infants will now henceforth attract a 16% tax charge. Items included in the exempt supplies list under the First Schedule to the Act 2013, include: mosquito nets, man-made fishing nets made of textile material, unprocessed tea, specialized solar equipment, animal feeds material, raw materials (locally produced or imported) supplied to pharmaceutical manufacturers in Kenya, etc.
Q. What goods and services is VAT charged?
While the tax applies to most goods and services, some are excluded from VAT entirely - VAT exempt goods and services. Others are not entirely exempted, but a 0% charge applies to them - Zero Rated goods and services.
The list of Zero-rated items is specified in the Fifth Schedule (Parts A and B) for zero rated supplies and goods respectively, and on the Eighth Schedule (Part B) for special goods subjected to zero rating.
Exempt (non-taxable) goods and supplies are listed in the 2nd Schedule. Note that exempt goods are not identified as taxable items while zero rated goods are listed as taxable items. The same applies for services.
Q. How is VAT collected?
VAT is collected on behalf of Kenya Revenue Authority by registered companies and individuals, who then remit the monies to the Commissioner. The amount should be remitted on or before the 20th of each month for VAT accrued over the previous month (tax period). Otherwise, a penalty calculated at 2% per month becomes a liability.
Q. Can you de-register from VAT?
Yes. This is possible by applying to the Commissioner and expressing your willingness for de-registration. This will only happen if you meet the stated criterion as outlined in the Act. The Commissioner could also de-register you without your application for de-registration and subsequently issue a notice to that effect if there is solid ground for such application.