VAT looks like a tax for big companies until your turnover crosses the threshold and it's suddenly your problem. Here's when you must register, how the 16% works, when to file, and why eTIMS changed how you claim input VAT.
VAT registration is mandatory once your taxable supplies reach KES 5 million in any 12-month period. Below that you can still register voluntarily — which often makes sense if most of your customers are VAT-registered businesses, because they'll want to claim input VAT on what they pay you.
Don't treat the threshold as a line to dance around. KRA monitors turnover, and late registration can mean penalties on top of the tax that was due anyway. If you're close, register early and get the paperwork boring.
| Rate | Applies to |
|---|---|
| 16% | Standard rate — most goods and services. |
| 0% | Exports and certain supplies — taxable, but at zero. |
| Exempt | A defined list of supplies with no VAT charged at all. |
The distinction between zero-rated and exempt matters for your input claims: zero-rated supplies generally still let you claim input VAT; exempt supplies don't.
VAT is charged on the supply, shown separately on the tax invoice, and remitted to KRA. If a price is quoted "VAT inclusive", the tax is embedded in the total; if "exclusive", it's added on top. Either way the invoice must break out the VAT figure clearly — the fields for this are part of the KRA-ready invoice we covered earlier.
Input VAT is the VAT you pay on your own business purchases — stock, equipment, services from other registered suppliers. Each month you net output VAT (what you charged customers) against input VAT (what you paid suppliers) and remit the difference.
Here's the part that changed everything: you can only claim input VAT on purchases backed by valid eTIMS invoices. A supplier who raises a manual invoice — no matter how official it looks — has given you a piece of paper you can't claim on. That's why our eTIMS guide keeps hammering the QR code: your input claims depend on your suppliers complying.
Payments go through iTax — including via the KRA PayBill (572572) for M-Pesa.
Thresholds, rates, and penalty figures can be adjusted by Finance Bills. Confirm the position for your situation with your accountant and on the KRA portal.
For most SMEs the practical answer is: register when you must, invoice through eTIMS, keep every purchase document, and file on the 20th like clockwork. A system that issues the invoice, stores the records, and matches the payments takes most of the pain out of it.
Invoices, records, and payments in one place — so your returns reconcile the first time. Set up in about five minutes.
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