Value Added Tax in Kenya: A Basic Guide

Value Added Tax (VAT) in Kenya – Basic Guide

July 10, 2025

In the previous article, we went into detail on the history of taxation in Kenya, exploring the two main types of taxation – Direct and Indirect Taxes.

We identified and effectively categorised the different types of taxes and pointed out VAT as one of the most significant indirect taxes effectively utilized by the government of Kenya.

VAT in Kenya is a consumption tax that is levied on the sale of goods and services at each stage of the supply chain – from production to distribution.

It remains one of the most important sources of government revenue.

In this guide, we take an in-depth look at VAT in Kenya, explore its history, key characteristics, types, refund procedures, calculation methods, and filing obligations.

So, let’s get started.

Key Takeaways - VAT in Kenya

VAT is charged at 16% on most goods and services in Kenya.
Businesses with over KES 5M Annual Turnover must register and file monthly via iTax.
VAT is based on Input vs Output Tax – only the difference is paid.
Late filing or payment attracts penalties and interest.
VAT Refunds apply if Input VAT exceeds Output VAT.
The eTIMS platform is mandatory for issuing tax invoices.

Introduction To VAT

Value Added Tax (VAT) is an indirect tax and is a form of Consumption Tax charged on the Sale of goods and services in Kenya at each stage of the supply chain – from Manufacturer to Distributor to Retailer.

Since it’s an Indirect Tax, this means that the tax is levied onto the final consumer, and is collected by intermediaries such as suppliers or retailers, who then remit it to the government.

In Kenya, VAT comprises one of the largest tax baskets used by the government to generate revenue.

A report by KRA showed that VAT collection in 2024 hit an all-time high of Ksh 32.1 billion in May alone.

Out of this amount, Domestic VAT collected from Medium and Small Traders stood at Ksh 6.98 billion, representing a 39.7% spike compared to 2023.

In Kenya, all businesses with an annual turnover exceeding KES 5 million are required to register for VAT and file their VAT returns monthly through the iTax portal.

As of 2025, the standard VAT rate in Kenya is set at 16%.

Key Characteristics Of VAT In Kenya

i) Multi-stage Tax:

VAT is levied at every stage where value is added in the supply chain – from the manufacturer, to the wholesaler, to the retailer.

ii) Final Burden on the Consumer:

VAT is paid by the end consumer, even though it’s collected by businesses.

iii) Input-Output Mechanism:

Businesses can offset VAT paid on purchases (Input VAT) against the VAT Collected on sales (Output VAT).

iv) Collected by Registered Persons:

VAT is collected by VAT-registered persons or businesses and then remitted to the Kenya Revenue Authority (KRA).

v) Broad Coverage:

Most goods and services in Kenya are subject to VAT, unless explicitly exempt or zero-rated under the VAT Act.

vi) Invoice-Based:

VAT in Kenya must be backed by valid tax invoices, issued via the approved Tax Invoice Management System (TIMS).

vii) Self-Assessed and Self-Reported:

Businesses are required to compute and file VAT themselves, on a monthly basis, using the iTax system.

Prerequisites Of VAT In Kenya

Before a business can comply with VAT in Kenya, it must meet several legal and operational requirements:

i) VAT Registration

A person or business is required to register for VAT if:
Their taxable Turnover exceeds KES 5 million
The business chooses to voluntarily register (even if below the threshold)—for instance, to claim input VAT or deal with VAT-registered suppliers

N/B: VAT registration is done through the KRA iTax portal, after which the taxpayer receives a VAT Certificate and PIN.

ii) Taxable Supplies

The VAT Act, 2013 defines Taxable Supplies as all supplies made in Kenya (excluding Exempt Supplies) by a person in the course of business – including when starting or winding up.
A business must be engaged in the sale of taxable goods or services, whether standard-rated or zero-rated, as defined under the First and Second Schedules of the VAT Act.

iii) Valid Business Records

– To comply with VAT in Kenya, a business must maintain:

Proper Books of Accounts
Tax Invoices
Records of Input and Output VAT
Relevant import/export documents

iv) Tax Invoicing System

All VAT-registered persons are required to issue Electronic Tax Invoices using TIMS devices, which transmit data in real time to KRA for Compliance Tracking.

v) iTax Account

VAT returns, payments, and refund applications must be processed through KRA’s iTax portal. Having a functional iTax account is essential for any VAT-compliant business.

vi) Knowledge of VAT Categories

Understanding the three main VAT categories in Kenya is key:

Standard-rated Supplies – 16%
Exempt Supplies – No VAT applied (e.g. education, banking)
Zero-rated Supplies – Taxed at 0%, and input VAT can be refunded (e.g. exports)

The History Of VAT In Kenya

Year	Development
1990	VAT was introduced in Kenya, replacing the Sales Tax Act of 1973
2013	The VAT Act, 2013 was enacted to streamline VAT administration and align with international best practices.
2019	Launch of electronic tax invoicing and integration with KRA’s iTax system.
2022 – 2025	KRA begins rolling out eTIMS (Electronic Tax Invoice Management System) for real-time invoice validation.
2025	Ongoing refinements to support digitization, enhance refund timelines, and curb fraud.

Types Of VAT Rates In Kenya

Standard-Rated VAT (16%)

This rate applies to most goods and services such as electronics, consultancy, furniture, and restaurant services.

Zero-Rated VAT (0%)

Goods and services are taxed at 0%. Businesses can still claim input VAT. Examples include exports, medical equipment, and select farm inputs.

Exempt Supplies

These attract no VAT and input VAT cannot be claimed. Examples include financial services, education, and residential rent.

Deleted Rate (8%)

Previously applied to petroleum products. Removed under the Finance Act, 2023.

How VAT Is Calculated In Kenya

VAT in Kenya is calculated using the Input-Output system which ensures VAT is only paid on the value added at each stage of the supply chain.

Input vs Output VAT

Input VAT: Tax paid on purchases (e.g. raw materials, goods, or services used in business)

Output VAT: Tax charged on sales of taxable goods or services

VAT Payable Formula:

VAT Payable = Output VAT − Input VAT

Example: How to Calculate VAT in Kenya

Purchases

Item	Amount
Net Price	10,000
16% VAT	1,600 (Input VAT)
Gross Price	11,600

Sales

Item	Amount
Net Price	10,000
Profit Margin (20%)	2,000
Net Sale Price	12,000
16% VAT	1,920 (Output VAT)
Gross Selling Price	13,920

VAT Payable:

VAT Payable = 1,920 (Output) – 1,600 (Input) = Ksh 320

This Ksh 320 is what the business must remit to KRA.

In the instance where Input VAT exceeds Output VAT, the taxpayer may claim a refund or carry it forward to the next period.

Note: Withholding VAT, if applicable, and any credit carried forward from previous months, must also be considered.

How To File VAT In Kenya

Businesses are required to file VAT returns every month through the iTax system by the 20th of the following month.

Filing Steps:

Step 1: Register for VAT

Register on https://itax.kra.go.ke
You must register if your turnover exceeds KES 5 million per year.

Step 2: Maintain Tax Invoices

Issue tax-compliant invoices using approved eTIMS systems.
Retain invoices for all purchases to claim input VAT.

Step 3: Log into iTax

Go to Returns → File VAT Return – Monthly
Upload data using Excel or CSV VAT return template.

Step 4: Declare Output and Input VAT

Output VAT = VAT collected on sales
Input VAT = VAT paid on purchases
The system calculates VAT payable or refundable.

Step 5: Submit and Pay

Select Mode of Payment as Other Payment Mode or RGTS.
Click on the submit button.
Pay VAT due by the 20th of the following month

VAT Refunds In Kenya

You may apply for a VAT refund in Kenya if input VAT exceeds output VAT.

This usually applies to exporters or capital-intensive projects.

Some common Scenarios that warrant a VAT refund include:

Zero-rated Supplies (Exports)
Excess input VAT on large purchases
Withholding VAT overpaid.

VAT Refund Process:

Log on to itax.kra.go.ke by entering your KRA PIN and Password
On the iTax menu, Select VAT under the refunds menu
Confirm taxpayer details and click next
Fill in taxpayer’s bank account details and click next
Select your refund type, the claim reason, the description of the reason of the claim and the amount then submitted.

VAT Penalties In Kenya

Penalties under the VAT regime in Kenya may arise from either: Late filing or late payment, and can significantly impact your cash flow.

i) Late Filing of VAT Return

Penalty: 5% of the tax due or Ksh 10,000, whichever is higher

ii) Late Payment of VAT

Penalty: 5% of the tax due
Additional: 1% interest per month on the outstanding amount

iii) Failure to File Returns (Even if No Sales Occurred)

Minimum Penalty: Ksh 10,000 per period

It’s critical to file even if no transactions took place in a month.

Deregistration From VAT In Kenya

You can apply for VAT deregistration if:

Annual turnover drops below KES 5 million
You no longer make taxable supplies
Your business has closed

The application must be made in writing to KRA, and you must continue filing returns until officially deregistered.

N/B: Failure to file attracts Ksh 10,000 per return plus penalties.

A person registered for VAT may apply for deregistration if:

Their Annual Turnover falls below the Kshs 5 million threshold.
They no longer make taxable supplies.
There is any other valid reason (e.g., business closure).
Application must be in writing to the Commissioner of KRA.
The commissioner will approve if satisfied the applicant qualifies.

Once Deregistered:

The person is relieved from VAT obligations (e.g., charging VAT, filing VAT returns).
Until deregistration is confirmed, the person must continue filing monthly VAT returns by the 20th of the following month – even if no trading occurred.

N/B: Failure to file attracts a penalty of Kshs 10,000 per tax period, plus additional penalties as per VAT law

FAQs – VAT In Kenya

1. What is VAT?

Value Added Tax (VAT) is a Consumption Tax levied on the sale of goods and services in Kenya.
It is charged at each stage of the supply chain – from manufacturers to wholesalers to retailers – based on the value added at that stage.
In Kenya, VAT is governed by the VAT Act, 2013 and administered by the Kenya Revenue Authority (KRA).

2. How is VAT withheld in Kenya?

Kenya operates a Withholding VAT mechanism under which appointed agents (mainly government entities and large companies) withhold 2% of the VAT payable at the point of payment to suppliers.
The withheld VAT is then remitted directly to KRA on behalf of the supplier. This aims to reduce VAT evasion and improve compliance.

Note: The supplier can claim the withheld VAT as part of their VAT credits during filing.

3. How is VAT applied to imported services in Kenya?

Imported services are subject to Reverse VAT.
If a Kenyan business acquires services from a non-resident supplier (e.g., online consulting or software subscriptions), the local recipient must account for and pay VAT on the value of the service – even if the foreign supplier is not registered for VAT in Kenya.
This is typically declared under Schedule 4 of the VAT return and is common in digital services and cross-border B2B transactions.

4. Was VAT affected by the Finance Bill 2025?

Yes. The Finance Bill 2025 introduced several VAT-related amendments, including:

Reclassification of goods and services between exempt and standard-rated categories.
Expansion of the definition of taxable supplies, especially in the digital space.
Adjustments in the Withholding VAT regime to include more agents and streamline recovery mechanisms.
Proposals for enhanced VAT compliance measures and penalties for non-filers.

These changes are aimed at broadening the tax base while reducing leakages.

Conclusion

VAT in Kenya is the backbone of the country’s revenue system. While powerful, it’s also complex – especially for businesses navigating monthly filings, compliance, and audits.

In the instance that your business struggles to stay VAT compliant, the risks can be costly – from penalties to blocked refunds. Staying informed and proactive is essential.

Call To Action – Let Quartet Help You Stay Vat Compliant

At Quartet Consulting, we support Kenyan businesses with all matters related to VAT in Kenya – from registration, invoicing systems, VAT refunds, and monthly return filings to audit support.

Talk to us today and let us walk with you on your compliance journey – so you can focus on what really matters: growing your business.

Talk to a Tax Expert

Call: +254 710 951 698

Prefer Email? info@quartet-co.com