What is VAT Withholding?
VAT Withholding is a tax mechanism introduced under the Kenyan VAT Act 2013, where certain appointed agents (usually government ministries, departments, and large companies) are required to withhold part of the VAT payable to their suppliers and remit it directly to the Kenya Revenue Authority (KRA), instead of paying the full invoice amount to the supplier.
This is not an additional tax; it’s a way for KRA to ensure faster VAT collection and reduce non-compliance. The amount withheld is treated as VAT already paid by the supplier and should be reflected in their tax return.
Current Withholding VAT Rate in Kenya
As of the current regulations:
- Withholding VAT rate: 2% of the taxable value (i.e. before VAT is added).
- The standard VAT rate in Kenya: 16%.
⚠️ The withholding agent remits the 2% directly to KRA. The supplier receives 98% of the taxable amount plus the VAT portion not withheld.
Who Is Affected?
VAT withholding applies if:
- The supplier is VAT-registered.
- The buyer is a KRA-appointed withholding VAT agent.
- The goods/services supplied are subject to VAT.
Example Scenarios
✅ Scenario 1: VAT Exclusive Invoice
Let’s assume:
- Supplier invoices KSh 100,000 (VAT exclusive)
- VAT at 16% = KSh 16,000
- Total invoice = KSh 116,000
As per VAT Withholding rules:
- The withholding agent retains 2% of KSh 100,000 = KSh 2,000
- The supplier will receive:
| Item | Amount (KSh) |
|---|---|
| VAT exclusive amount | 100,000 |
| VAT (16%) | 16,000 |
| Less: VAT Withheld (2%) | (2,000) |
| Net Received by Supplier | 114,000 |
- The KSh 2,000 is paid directly to KRA by the agent.
- The supplier declares KSh 2,000 as withheld VAT in their monthly VAT return.
✅ Scenario 2: VAT Inclusive Amount
Let’s say the total invoice is KSh 116,000, VAT inclusive. You must first compute the taxable value before determining the withheld amount.
- VAT exclusive amount = KSh 116,000 ÷ 1.16 = KSh 100,000
- VAT (16%) = KSh 16,000
- VAT withheld (2% of 100,000) = KSh 2,000
- Net received by supplier = KSh 116,000 – 2,000 = KSh 114,000
How to Use the VAT Withholding Calculator
The calculator helps you determine:
- The VAT amount based on your invoice
- The withheld amount (2%)
- The final amount you will receive
You will input:
- Amount (either inclusive or exclusive of VAT)
- VAT Rate (usually 16%)
- Option: VAT Inclusive or VAT Exclusive
You will receive:
- VAT Amount
- VAT Withheld (2%)
- Final Receivable Amount
Why Use the Calculator?
✅ Fast, accurate VAT withholding calculations
✅ Reduces compliance errors
✅ Helps suppliers predict cash inflows
✅ Makes record-keeping and returns filing easier
Understanding how VAT withholding works in Kenya is crucial for any VAT-registered business or supplier dealing with appointed agents. It directly affects your receivables and tax filings.