To calculate VAT in Kenya, you need to understand the basic mechanism of VAT, which is a consumption tax applied to taxable goods and services at each stage of the supply chain.
The standard VAT rate in Kenya is 16%, though some supplies are zero-rated (0%) or exempt.
VAT is calculated as the difference between the output tax (VAT you charge on sales) and the input tax (VAT you pay on purchases).
Here’s a step-by-step guide:
Calculating VAT in Kenya
1) Determine the Taxable Amount:
- For sales, this is the price of the goods or services before VAT (the net amount).
- For purchases, it’s the cost of goods or services you’ve bought that are subject to VAT.
2) Calculate Output VAT:
- Multiply the net selling price by the VAT rate (16% or 0.16).
- Formula: Output VAT = Net Selling Price × 0.16
- Example: If you sell an item for KES 1,000 (net price), the output VAT is 1,000 × 0.16 = KES 160.
3) Calculate Input VAT:
- Identify the VAT paid on purchases used for your business (e.g., raw materials, services).
- Example: If you bought materials for KES 500 (net price) with 16% VAT, the input VAT is 500 × 0.16 = KES 80.
4) Compute VAT Payable
- Subtract the input VAT from the output VAT.
- Formula: VAT Payable = Output VAT – Input VAT
- Using the example: 160 – 80 = KES 80. You owe KES 80 to the Kenya Revenue Authority (KRA).
5) VAT-Inclusive Price (if needed)
- To find the total price including VAT: Gross Amount = Net Amount × (1 + VAT Rate)
- Example: 1,000 × 1.16 = KES 1,160.
- Alternatively, to extract VAT from a VAT-inclusive price: VAT = Gross Amount × (VAT Rate / (1 + VAT Rate))
- Example: For KES 1,160, VAT = 1,160 × (0.16 / 1.16) ≈ KES 160.
6) Consider Special Cases
- Zero-rated supplies (e.g., exports): VAT is 0%, so no output VAT is charged, but you can still claim input VAT.
- Exempt supplies (e.g., medical supplies, unprocessed agricultural products): No VAT is charged or claimed.
- Imported services: You may need to account for reverse VAT (16% of the service value) if the provider is non-resident.
7) Filing and Payment
- If registered for VAT (mandatory for businesses with annual taxable sales above KES 5 million), file monthly returns via the KRA’s iTax portal by the 20th of the following month.
- Pay any VAT due using an E-slip generated from iTax, either at KRA-appointed banks or via direct bank transfer.
Example Scenario:
- You buy goods for KES 10,000 (net) and pay 16% VAT (input VAT = 10,000 × 0.16 = KES 1,600).
- You sell those goods for KES 15,000 (net) and charge 16% VAT (output VAT = 15,000 × 0.16 = KES 2,400).
- VAT payable = 2,400 – 1,600 = KES 800.
- The customer pays you KES 15,000 + 2,400 = KES 17,400.
Tips:
- Keep accurate records of all transactions, as input VAT can only be claimed with valid tax invoices.
- Input VAT deductions must be claimed within six months of the sale.
- Late filing or payment incurs penalties (e.g., KES 10,000 or 5% of tax due, whichever is higher, plus 1% monthly interest on unpaid tax).
If you’re dealing with complex transactions (e.g., imports or mixed supplies), consulting a tax professional or the KRA directly might help.
