Understanding Value Added Tax KRA

What is Value Added Tax(VAT)?

Value Added Tax is charged on goods or services  manufactured in Kenya by companies or  businesses whose annual revenue exceeds Ksh 5 million. VAT also applies on goods and services that have been imported into the country.

Companies and businesses whose annual revenue is below Ksh 5 million can register for VAT on a voluntary basis as they are not required to. Registered VAT taxpayers are obligated to file returns by 20th of the following month. VAT registered taxpayers who have not made any sales in a month are still required to file returns in this case they will be nil returns. 

What is the penalty for failing to file VAT returns?

VAT registered taxpayers who fail to file their returns on or before 20th of the month will be subjected to a penalty of Ksh 10,000. 

What is an Electronic Tax Register (ETR) Machine for VAT?

All businesses or companies who have registered for VAT are required to possess an Electronic Tax Register (ETR) machine to  generate and electronically transmit their validated tax invoices to KRA. ETR machines are provided by KRA through authorized sellers. 

A list of approved suppliers of the new ETRs can be accessed from the KRA Website

How to calculate VAT

Value Added Tax operates on an Input tax - output tax principle. 

Input Tax is VAT charged on the purchases of taxable goods or services for businesses while Output Tax is VAT charged on the sales of taxable goods or services. 

Therefore, VAT is calculated as follows:

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Output Tax - Input Tax= VAT Payable (if positive)

In cases where VAT Payable is negative, meaning the Input Tax has exceeded the Output, the excess will be carried forward to the following months until it is fully exhausted. 

VAT on Imported Goods or Services

As mentioned earlier, VAT also applies on imported goods or services as reverse Tax. Reverse tax falls on the importer of the goods or services be it a business or individual. 

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