Welcome to Kenya VAT Calculator 2025

How VAT Works in Kenya: Input and Output Tax System

VAT in Kenya operates under the Input/Output Tax system, a method that ensures tax is collected at every stage of the supply chain. Here’s how it works:

• Input Tax: This is the VAT paid by a registered business on purchases of goods and services that will be used for business operations. It can be reclaimed against the VAT collected on sales.
• Output Tax: This is the VAT charged by businesses when they sell taxable goods or services. The tax payable is the difference between the output tax and the input tax.

Formula: Output Tax – Input Tax = Tax Payable

Example of VAT Calculation in Kenya

Let’s walk through an example of how VAT is calculated for a business:

Purchases:

• Net Purchase Price: Ksh 10,000
• Input Tax (16%): Ksh 1,600
• Gross Purchase Price: Ksh 11,600

Sales:

• Gross Purchase Price: Ksh 11,600
• Less VAT Paid (Input Tax): Ksh 1,600
• Net Purchase Price: Ksh 10,000
• Add 20% Profit Margin: Ksh 2,000
• Net Sales Price: Ksh 12,000
• Add Output Tax (16%): Ksh 1,920
• Selling Price: Ksh 13,920

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

VAT is charged at each stage of the supply chain, from the initial purchase to the final sale to the consumer. For example, if you’re selling a box of chocolates, VAT is applied when cocoa is sourced, when the wholesaler sells the ingredients to the manufacturer, and again when the final product is sold to the consumer.

Note: Businesses can also apply Withholding VAT credits and Excess Input Tax brought forward to reduce the tax payable.

Kenya VAT Rates: Current 2025 Tax Rates and Key Information

Kenya VAT rates consist of three main categories: the standard rate of 16%, a reduced rate of 8% on petroleum products, and a zero rate for specific supplies. Each rate applies to different types of goods and services, and understanding these categories is essential for businesses to remain compliant with Kenyan tax laws.

16% Standard VAT Rate In Kenya

The 16% VAT rate is the standard rate applied to taxable goods and services across Kenya. It is also applicable to imports into the country. This rate is the most commonly used for most products and services and is crucial for businesses to comply with to ensure accurate VAT calculation and reporting.

8% VAT Rate on Petroleum Products

An 8% VAT rate is specifically applied to the local supply of petroleum products, including fuel and oils. This reduced rate helps manage the impact of fuel prices on businesses and consumers while ensuring compliance with the Kenyan VAT regulations on energy-related products.

0% Zero VAT Rate

The 0% VAT rate applies to specific supplies, including exports, international passenger transport, and other zero-rated supplies such as those sent to EPZs (Export Processing Zones), diplomats, and governments. This rate allows businesses to reclaim the input tax on goods and services supplied under these categories, ensuring tax efficiency for export-related businesses.

Exempt Rated Goods and Services in Kenya

In Kenya, certain goods and services are exempt from VAT, meaning they are not subject to the standard tax rates. These exempt supplies include agricultural products, financial services, medical supplies, tour operator services, and entrance to national parks. Other exempt categories include domestic passenger transport, medical services, education and training services, residential property, betting and gaming, and domestic water. Businesses dealing with exempt supplies cannot claim input tax credits on related purchases. Understanding these exemptions is crucial for businesses to remain compliant with Kenya’s VAT regulations.

3% Turnover Tax

Businesses with an annual turnover between KES 100,000 and KES 500,000, which are below the VAT registration threshold, are subject to a 3% turnover tax. This simplified tax structure is designed for smaller businesses that do not qualify for VAT registration but still need to comply with basic tax regulations in Kenya.

VAT Registration Requirements in Kenya

In Kenya, VAT registration is mandatory for individuals or businesses making taxable supplies exceeding KES 5 million within a 12-month period. The sale of capital assets is excluded when determining the registration threshold. However, businesses with taxable supplies below this threshold can voluntarily apply for VAT registration, provided they meet the necessary requirements.

Non-resident suppliers offering services via electronic networks, the internet, or digital marketplaces to Kenyan consumers are not subject to the KES 5 million threshold and must register for VAT regardless of their taxable supplies.

Input Tax Deduction and Recovery

Registered VAT taxpayers are eligible to deduct input tax on taxable supplies or imports. This deduction is applicable only when the supply was acquired for making taxable supplies. Input tax can be deducted within six months following the end of the tax period in which the supply or importation occurred. As of July 2023, taxpayers must ensure that the supplier has declared the corresponding sales invoice in their VAT return, in addition to having the correct supporting documentation.

Taxable Value and Refunds

The taxable value includes the consideration for the supply and any taxes, duties, levies, fees, and charges paid or payable. Effective from July 2023, taxpayers are entitled to claim VAT refunds for bad debts if the debt is not paid after three years but within ten years from the date of supply. Refunds can also be claimed if the customer is placed under statutory management, such as administration or liquidation.

Changes in VAT Legislation: Tax Laws (Amendment) Act, 2024

The Tax Laws (Amendment) Act, 2024, which came into effect on December 27, 2024, introduced key changes to the VAT Act:

• Time of Supply for Exported Goods: The time of supply for exported goods will now be when the export certificate or relevant export documents are available.
• Input Apportionment Formula: The previous 90:10 input tax apportionment rule, which allowed full deduction for businesses with less than 10% exempt supplies, has been deleted.
• VAT Exemption on Business Transfers: A VAT exemption has been introduced for the “transfer of a business as a going concern.”

For more insights into VAT registration and the latest updates on VAT laws, consult with a tax advisor to ensure compliance with Kenya’s VAT regulations.

VAT Return Filing Due Date

VAT returns must be filed monthly via the iTax platform by the 20th of the following month. This includes both the filing of the return and the corresponding payment. If no VAT is due, businesses must still file a nil return.

Tax Invoices: Requirements and Issuance

A tax invoice is issued by VAT-registered persons and contains details about the sale transaction, including the VAT charged.

• The invoice must be serially numbered and generated via the eTIMS system.
• Credit notes must be issued within six months after the original tax invoice if the value of the supply changes or goods are returned.

Input Tax Deduction

VAT-registered individuals can claim input tax deductions for purchases made in the course of business. These deductions can be claimed within six months of the tax period in which the supply or importation occurred. The required documentation must be retained to substantiate these claims.

Record-Keeping for VAT Compliance

Registered VAT taxpayers are required to maintain proper records, including both physical and electronic records, to support all taxable transactions.

Time of Supply (Tax Point)
The tax point determines when VAT becomes due, and it is triggered by the earliest of the following events:

• Delivery of goods or completion of services.
• Issuance of an architect’s or surveyor’s certificate.
• Issuance of an invoice.
• Receipt of payment (in whole or in part).

VAT Registration for Digital Marketplace Supplies

Non-resident suppliers of digital services to Kenyan consumers must register for VAT, regardless of whether their taxable supplies exceed the KES 5 million threshold. A simplified registration and filing system is available for these suppliers.

Deregistration for VAT

If a registered VAT taxpayer’s turnover drops below KES 5 million or if they cease making taxable supplies, they may apply for deregistration. Specific processes must be followed in cases of death, insolvency, or legal incapacitation of a taxpayer.

VAT Payment Procedure via iTax

• Login to iTax using your PIN and password.
• Select VAT as the tax head and self-assessment as the payment type.
• Generate and download the payment slip and pay via bank or M-PESA.

Electronic Tax Invoice and eTIMS System

The eTIMS system allows for the generation of electronic tax invoices with QR codes for verification. This system simplifies VAT compliance and helps ensure accuracy and accountability.

VAT Special Table and Compliance

The VAT Special Table is an enhanced mechanism designed to ensure VAT compliance. Taxpayers found to be non-compliant or involved in VAT fraud may be placed on this table, which restricts certain processes such as filing returns or claiming input tax.

VAT on Imported Services (Reverse VAT)

Services provided by non-resident suppliers or Export Processing Zones (EPZs) are subject to reverse VAT. Regardless of VAT registration status, any importer of such services must pay VAT on imported services via the iTax platform.

Withholding VAT

Withholding VAT is charged at a rate of 2% on taxable supplies. Certain supplies like zero-rated or exempt goods are excluded from withholding VAT. The withheld VAT is remitted to KRA by appointed withholding agents via the iTax platform.