Kenya’s tax regime includes income tax, customs, excise duty, and value-added tax or VAT. Value-Added Tax in Kenya was introduced back in January 1990. This tax affects chargeable goods and services in Kenya following the standard international model where VAT is charged at every point in the supply chain until the final customer.

Value-Added Tax in Kenya

There is a monthly VAT return available for Tax registered businesses that lay claim for a deduction of the input VAT incurred from the VAT collected on sales. There are requirements for VAT Kenya since it is mandatory.

VAT requirements

VAT registration is mandatory for anyone who making or is expecting to make taxable funds from goods or services that have a value exceeding Ksh 5 million. Also, every registered person is expected to keep records of business dealings in either English or Kiswahili for 5 years and should be able to produce these records for inspection if the revenue office requests it. The tax period for accounting supplies is usually a calendar month although an extension can be requested.

A taxpayer is registered for VAT is required to file mandatory returns every month regardless of irrespective of if there were transactions or not. A tax representative has the duties of administration, this includes recording and accounting.

Tax representatives are especially helpful for people who are required to apply for VAT registration but these people might not have a fixed place of business in Kenya or they are non-residents. If a person requires a tax representative and fails to do so, the Commissioner of the revenue authority can appoint a tax representative for the non-resident person.

The Kenyan VAT system is built on the output-input model of sales and purchases which are parallel with output VAT and input VAT respectively. The Kenyan tax law makes it clear that the burden of tax is on the importer of taxable services. This kind of VAT is referred to as the reverse VAT.

VAT exemptions

Value Added Tax in Kenya is a consumer tax charged on the supply or importation of taxable goods or services made in Kenya however there are some exemptions to this law. The tax rate is either 16% and 0% but there is a lower rate of 12% specifically for industrial fuel and electricity.

The 2 main types of supplies in Kenya are zero-rated supplies and exempt supplies. Zero-rated supplies are simply, taxable supplies that have a zero rate of tax. Zero-rated supplies are typically exports. There are also exempt supplies that typically include food items, medical and agricultural supplies that are not eligible for value-added tax. Also, some financial services are exempted from VAT. All other supplies are currently taxable at the general rate of 16%.

A country’s tax system is a key factor for growth especially since any investors will definitely consider that nation’s tax before starting a business there. Kenya is a developing country and is one of the emerging markets in the world, it is good that they have a fair and understandable tax system, this will help the country attract investors.