KRA VAT calculator: How to Calculate VAT and Everything to Know About VAT in Kenya

In finance and business, taxes play a crucial role in sustaining a country's economy. One of the significant contributors to Kenya's revenue is the Value Added Tax (VAT). In this article, I will explain everything you need to know about the intricacies of VAT in Kenya, covering everything from its rates to registration and returns, ensuring you clearly understand this essential aspect of taxation.

What is Value Added Tax (VAT)?

Value Added Tax, commonly known as VAT, is a consumer tax imposed on the supply and importation of taxable goods or services in Kenya. It is a vital source of revenue for the Kenyan government, ensuring the financing of public services, infrastructure development, and various other essential initiatives.

In Kenya, a business entity is obligated to register for VAT under two circumstances:

1. The trader expects to have or has an annual taxable turnover of Kshs. 5,000,000 and above.
2. Voluntary registration by a trader who makes or intends to make taxable supplies.

Who should register for VAT?

KRA (Kenya Revenue Authority) has established specific conditions and mandatory documentary requirements for the approval of VAT registration, which include:

• Original CR12 for companies and identity documents for directors or individuals.
• Business permits from relevant authorities.
• Work permits for non-resident aliens.
• Tax Compliance Certificates for all directors.
• Appointment of a Tax Representative for non-resident companies.
• Contact details and physical address.
• Verified telephone contacts and email addresses.
• Utility meter numbers and related documents.
• Office rent agreements.
• Website(s) or uniform resource locators (URLs) where applicable.
• Contract agreements and sample invoices.

Once a taxpayer meets these requirements, they can apply for VAT registration, which is done online via the iTax system.

VAT Rates

In Kenya, there are three VAT rates:

1. 0% - for zero-rated supplies, including goods and services listed in the 2nd Schedule to the VAT Act (e.g., exportation of goods/services, goods supplied to EPZ, privileged persons, and public bodies).
2. 8% - applied to petroleum oils obtained from bituminous sources and motor spirits (e.g., Diesel Supero, Aviation spirit, etc.).
3. 16% - the general rate for other goods and services.

When is VAT Payable?

VAT becomes payable when any of the following events occur, whichever is earlier:

1. Goods or services are supplied to the purchaser.
2. An invoice is issued in respect of the supply.
3. Payment is received for all or part of the supply.
4. A certificate is issued by an architect, surveyor, or any person acting as a consultant or in a supervisory capacity regarding the service.

How to File for VAT

VAT returns must be submitted monthly via iTax, which should be done on or before the 20th day of the following month. Even if you have no VAT to declare, it is mandatory to submit a NIL return.

After filing the VAT return online via iTax, you must generate an E-slip, which is used to pay the Tax at KRA-appointed banks physically. Alternatively, you can authorize your bank to pay the Tax through a direct credit transfer to the Commissioner's account at the Central Bank of Kenya.

How to Calculate VAT In Kenya

Understanding how to calculate VAT is crucial for both businesses and consumers. VAT is the difference between output VAT (VAT charged to customers) and input VAT (VAT paid to suppliers). If your input VAT exceeds your output VAT, the surplus can be carried forward as a tax credit for the next month.

Let's illustrate this with an example:

Suppose you buy goods for KShs—1,000 with a 16% VAT (KShs. 160). You sell the same goods for KShs. 1,100 with a 16% VAT (KShs. 176). Your VAT payable would be:

VAT Payable = Output VAT (KShs. 176) - Input VAT (KShs. 160) = KShs. 16

KRA VAT CALCULATOR:

CLICK HERE

Penalties for Late Filing and Payment

Filing and paying VAT on time are crucial to avoid penalties:

• Penalty on late filing: Whichever is higher between Kshs. 10,000 and 5% of the Tax due.
• Penalty on late payment: 5% of the Tax due and a late payment interest of 1% per month on the unpaid Tax until it is paid in full.

Electronic Tax Invoice

The introduction of the VAT (Electronic Tax Invoice) Regulations 2020 has changed how invoices are handled in Kenya. These regulations aim to streamline the process by implementing electronic tax invoices, which can be generated from a compliant Electronic Tax Register (ETR) or the eTIMS system. This software solution, eTIMS, offers convenience and accessibility through various electronic devices, including computers and mobile phone apps.

Implementation of the VAT Special Table

The VAT Special Table is a mechanism implemented in iTax to enhance VAT compliance. It restricts certain categories of VAT-registered taxpayers from performing specific processes. These categories include:

1. Nil filers and Non-filers – Taxpayers who have not filed or have consecutively filed NIL returns for a specified period.
2. Missing Traders – Taxpayers who are filing and paying VAT but were found to be involved in VAT fraud related to 'missing trader' schemes.

The benefits of the VAT Special Table include identifying erroneously added VAT obligations, reducing abuse of traders' PINs, and assisting traders in conducting business with compliant suppliers.

If a taxpayer is placed on the VAT Special Table, they will be restricted from filing VAT returns. Penalties will not be charged for non-filing VAT returns due to being on the particular table. Traders cannot claim input tax from taxpayers on the unique table, and removal from the table requires guidance from the Tax Service Office.

VAT on Imported Services (Reverse VAT)

Imported services, also known as Reverse VAT, pertain to services provided by non-resident persons not required to register for VAT in Kenya. Regardless of their VAT registration status, any importer of an imported service is liable to pay VAT on the imported service. To pay VAT on imported services, the importer must register for a KRA PIN and generate an e-slip for payment.

VAT on imported services is due and payable upon the receipt of the taxable service, issuance of an invoice, or payment for the service, whichever occurs earliest.

Tax on imported services for use in the registered person's taxable business may be deducted as input tax in subsequent VAT returns.

Withholding VAT

Withholding VAT is charged at 2% of the value of taxable supplies starting November 7, 2019. It is not withheld on exempt goods, services, or zero-rated supplies. VAT withheld in exempt and zero-rated supplies is refundable.

Withholding VAT is remitted by appointed withholding VAT agents to the Commissioner on the 20th day of the following month. Payments are made online via iTax. Even if your VAT has been withheld, you must submit an online VAT return and account for the VAT balance.

VAT in Kenya: What is VAT, How to Calculate it, Eligibility, and Rates in Kenya

Conclusion

In conclusion, understanding Value Added Tax (VAT) in Kenya is essential for businesses and individuals. VAT plays a crucial role in funding government initiatives and services. By adhering to the registration, filing, and payment requirements, taxpayers can contribute to the country's economic growth while avoiding penalties and ensuring compliance with the tax laws.