Mastering VAT in Kenya: A Comprehensive Guide (2026)

By FNJ & Associates | Last updated: 30 October 2026

New to Kenyan taxes? Start with our overview of the types of taxes in Kenya, with every main rate and deadline in one table.

Value Added Tax (VAT) is one of the largest sources of revenue for the Kenya Revenue Authority (KRA) and one of the most frequent sources of compliance problems for businesses. This guide sets out how VAT in Kenya works in 2026: the rates, who must register, how input tax is claimed, how eTIMS fits in, filing and penalties, and the changes made by the Tax Laws (Amendment) Act, 2024 and the Finance Acts of 2025 and 2026. For the step-by-step monthly filing process, see our companion guide to VAT returns in Kenya.

What is VAT in Kenya?

VAT is a tax on consumption, charged under the VAT Act, 2013 on taxable supplies of goods and services made in Kenya and on the importation of taxable goods and services. It is collected at each stage of the supply chain through an input-output mechanism: a registered business charges output VAT on its sales, deducts the input VAT it has paid on qualifying business purchases, and pays the difference to KRA. The final consumer, who cannot claim input tax, bears the cost.

VAT rates in Kenya

The difference between zero-rated and exempt matters in practice. A business making mainly exempt supplies carries the VAT on its costs as an expense, while a zero-rated exporter can recover it, often through a refund claim.

Who must register for VAT?

Registration is compulsory where a person’s taxable supplies in a 12-month period exceed, or are expected to exceed, KES 5 million. Sales of capital assets are not counted towards the threshold. A business below the threshold may apply to register voluntarily if it meets KRA’s conditions, which can make sense for businesses that sell mainly to VAT-registered customers or that incur significant input VAT.

Non-residents that supply services to customers in Kenya through electronic networks, the internet or a digital marketplace must register under the simplified registration framework regardless of turnover, file monthly returns and pay the VAT due by the 20th day of the following month. The rules are set out in the VAT (Electronic, Internet and Digital Marketplace Supply) Regulations.

Tax invoices and eTIMS

Every VAT-registered person must issue a tax invoice at the time of supply through KRA’s electronic Tax Invoice Management System (eTIMS). Since the Finance Act, 2025, invoices must be issued for all supplies, including exempt supplies. eTIMS data now drives KRA’s checks: from 1 January 2026, KRA validates the income and expenses declared in returns against eTIMS invoices, withholding tax records and customs data. Our guide to eTIMS integration with Zoho Books explains the practical options.

Claiming input tax

A registered person may deduct input tax on purchases and imports used to make taxable supplies, subject to these conditions:

• The claim must be made within six months after the end of the tax period in which the supply or importation took place.
• The claim must be supported by a valid tax invoice (an eTIMS invoice for local purchases) or customs entry.
• Since 1 July 2023, input tax can only be claimed where the supplier has declared the sale in its own VAT return.
• Where a business makes both taxable and exempt supplies, input tax on common costs must be apportioned. The former 90:10 rule, which allowed full or nil deduction at the extremes, was removed by the Tax Laws (Amendment) Act, 2024.
• From 1 July 2026, where goods held in stock become exempt because of a change in the law, the input tax previously claimed on that stock must be adjusted (Finance Act, 2026).

Taxable value

The taxable value of a supply is generally the consideration for it, including any taxes (other than VAT), duties, levies, fees and charges connected with the supply. For imports, VAT is charged on the customs value plus import duty, excise duty and other levies, so the effective VAT cost on an import is higher than 16% of the invoice price.

VAT withholding

Persons appointed by KRA as VAT withholding agents, including many public entities and large businesses, withhold VAT at 2% of the taxable value when paying their suppliers and remit it to KRA. The supplier treats the amount withheld as a credit against the VAT payable in its return, and keeps the withholding certificates to support the claim.

Filing, payment and penalties

VAT returns and payments are due by the 20th day of the month following the tax period, and a return must be filed every month, including a nil return where there were no transactions. Returns are filed on iTax.

• Late filing: KES 10,000 or 5% of the tax due, whichever is higher.
• Late payment: 5% of the tax due.
• Interest: 1% per month on unpaid tax until it is settled.

Taxpayers with historical arrears should note the tax amnesty reinstated by the Finance Act, 2026: interest, penalties and fines for tax periods up to 31 December 2025 are waived where the principal tax is paid on or before 31 December 2026.

VAT refunds and bad debts

Refunds of excess input tax, for example by zero-rated exporters, and refunds of VAT withheld must be applied for within 12 months, following the Finance Act, 2025, which shortened the period from 24 months. Approved refunds may be offset against other VAT liabilities. Relief is also available for VAT paid on supplies that later become bad debts: the Finance Act, 2026 restored the relevant period to three years from 1 July 2026, reversing the cut to two years made in 2025. Refund and bad debt claims are reviewed closely, so the supporting records need to be complete before a claim is lodged.

Recent changes to VAT in Kenya

Tax Laws (Amendment) Act, 2024 (effective 27 December 2024)

• The time of supply for exported goods is linked to the date the certificate of export or other export documents become available.
• The 90:10 input tax apportionment rule was removed.
• The transfer of a business as a going concern is exempt from VAT.

Finance Act, 2025 (effective 1 July 2025)

• The period for applying for refunds of excess and withheld VAT was reduced from 24 months to 12 months.
• Approved refunds can be offset against other VAT liabilities.
• Tax invoices must be issued for all supplies, including exempt supplies.
• VAT becomes payable where an exemption or zero rating is used for a purpose other than the one intended.
• Tea for local consumption became exempt, and packaging materials for tea and coffee became zero-rated, subject to approval by the Cabinet Secretary responsible for agriculture.
• Clinical trial kits and mosquito repellents, and specified inputs for their manufacture, became exempt.

Finance Act, 2026 (effective 1 July 2026)

• Fees charged by payment service providers for payment processing, merchant acquiring, gateway and aggregation services are now subject to VAT at 16% (previously exempt).
• For labour outsourcing, employee costs passed on to the client are treated as disbursements, so VAT applies only to the service provider’s fee or margin.
• The bad debt relief period was restored to three years.
• Input tax on stock must be adjusted where supplies become exempt.
• Goods and services for the direct and exclusive use of approved public-private partnership and National Infrastructure Fund projects are exempt, subject to approval by the Cabinet Secretary for the National Treasury.
• Dialysers, scrap metal and the supply of repossessed collateral became exempt, while aircraft parts and materials for affordable housing projects moved to the standard rate of 16%.

Frequently asked questions

What is VAT in Kenya?

A tax on consumption, charged at each stage of the supply chain under the VAT Act, 2013. Registered businesses charge it on sales, deduct the VAT they paid on purchases and pay the difference to KRA.

Who pays VAT in Kenya?

The final consumer bears it. Registered businesses collect it and pay it to KRA, and they can deduct the VAT on their own purchases, so it is not a cost to them.

What is the VAT rate in Kenya in 2026?

The standard rate is 16%. Petroleum fuels are currently taxed at a reduced rate of 8%, zero-rated supplies such as exports are taxed at 0%, and exempt supplies carry no VAT.

When must a business register for VAT in Kenya?

When its taxable supplies exceed, or are expected to exceed, KES 5 million in any 12-month period. Businesses below the threshold can apply to register voluntarily.

When are VAT returns due?

By the 20th day of the month following the tax period, with payment due on the same date. A nil return is required for months with no transactions.

How long do I have to claim input VAT?

Six months after the end of the tax period in which the purchase or import took place, provided you hold a valid eTIMS invoice or customs entry and the supplier has declared the sale.

How FNJ & Associates can help

FNJ & Associates supports businesses with VAT registration, monthly return preparation and filing, reconciliation of output and input VAT to eTIMS, refund claims, VAT health checks and responses to KRA reviews. Contact us to discuss your VAT position.

Our tax and KRA services page sets out how we prepare returns, manage tax compliance and support clients through KRA reviews. If you run a small or growing business, see our accounting services for SMEs in Kenya, from bookkeeping and tax to payroll and audit.

Disclaimer

This article is general information based on Kenyan tax law and KRA guidance as at 23 October 2026. It is not tax, legal or financial advice, and rates, thresholds and deadlines change, often through the annual Finance Act. Confirm the current position with KRA or speak to FNJ & Associates before acting. FNJ & Associates accepts no liability for decisions made on the basis of this article.