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KRA Demand Notice

Monthly VAT Filing in Kenya

If your business or company earns at least 5 million Kenyan shillings annually, paying value-added tax (VAT) is a legal requirement. You need to file VAT returns monthly, by the 20th of the following month.Businesses earning less than Ksh 5 million can register for VAT too, but this is optional.

VAT is one of the most demanding tax obligations in Kenya, and large and small businesses alike struggle with tax filing, deadlines, audits, and penalties. Whether you are a large company, a partnership, or a small and medium-sized enterprise (SME), you need to understand how VAT works. Here is what every business must know about monthly VAT filing in Kenya to stay compliant.

What is VAT?

VAT is Value Added Tax; an indirect tax imposed on every consumer for taxable goods and services supplied or imported in Kenya.  In other words, whenever value is added to a product or service at any point in the production-to-consumption supply chain, VAT is imposed.

The final consumer bears the burden of all the VAT charges on a good or service, from production to consumption. Therefore, the more the VAT charges, the more expensive a good or service is for the final consumer. So, who keeps track of all the VAT imposed along the supply chain? KRA designates registered agents who collect the tax at various supply chain points and then remit it to KRA.

VAT Eligibility: Who Needs to File VAT in Kenya?

Not all businesses are required to pay VAT. Only traders and business owners who meet a certain threshold need to file VAT. This threshold is an annual turnover of Ksh. 5 million and above. If your business meets this threshold, you need to register for VAT and file monthly returns at the provided VAT rates. Does that mean any business below this threshold is not eligible for VAT in Kenya? Not necessarily. A business with less than Ksh. 5 million can voluntarily register for VAT under certain conditions.

Digital Service Providers and VAT

Digital service providers are required to register for and pay VAT at a 16% rate at the point of sale. It doesn’t matter if the business is local or foreign. KRA introduced the Digital Marketplace VAT Framework under the Finance Act, 2019. In 2021, a VAT was imposed on income earned through digital platforms. Digital service providers who are subject to this VAT obligation include:

  • Streaming services like YouTube, Netflix, and Spotify.
  • Online advertising sites like Google Ads, Facebook Ads, and Instagram Ads
  • E-learning services like Coursera and Udemy
  • Online betting platforms like Betway, 1Xbet, and 22Bet

VAT-Exempt Businesses

Certain businesses are exempt from VAT. These are traders who supply or import goods and services that are not subject to VAT. VAT-exempt supplies and services according to the First Schedule of the Finance Act 2023 include:

  • Certain medical supplies
  • Some agricultural supplies and services
  • Financial and insurance services

Key VAT Concepts: Rates, Input and Output Tax

KRA imposes two main VAT rates: a general rate of 14% for taxable supplies and services and a zero rate (0%) for specific supplies as outlined in the Second Schedule of the Finance Act, 2023.

Update: There was a third VAT rate, an 8% rate on certain supplies like petroleum products. This rate was scrapped in July 2023 as recorded in the Finance Act, 2023.

 Exempt supplies and services are not taxable, and as such, no VAT is deducted from them. A taxpayer who only trades in except supplies and services is therefore not required to register for VAT.

Output Tax vs. Input Tax in VAT

VAT tax calculation depends on two aspects: input tax and output tax. When a business person buys or imports supplies, a 16% VAT is imposed on the supplies (where applicable). This is called input tax.

On the other hand, when this trader sells the supplies to a consumer, a 16% VAT is charged on the goods, a charge that is paid by the consumer. This is called the output tax.

The VAT remittable to KRA in that month is the difference between the input tax and the output tax.

Tax Payable = Output Tax- Input Tax

Note: If the output tax is less than the input tax, the difference is carried forward to the following month as a tax credit. You will deduct this credit from the output tax of the following month.

Keeping Tax Records: ETR Machines and Electronic Tax Invoices

Electronic Tax Register (ETR) machines are special devices that every VAT-registered business must have, as mandated by KRA. They record sales transactions and generate electronic tax invoices. This data is then transmitted to the Tax Invoice Management System (TIMS).

ETR Machines are significant in VAT compliance in the following ways:

  • They enhance transparency, building trust between KRA and VAT-registered businesses
  • They ensure accuracy and save time that would have been used to manually record sales transactions
  • They facilitate real-time reporting of VAT-related transactions to TIMS
  • They reduce the risk and penalties that arise due to underreporting and sales manipulation
  • They reduce discrepancies during tax audits

How To Register for VAT

The first and obvious step in VAT registration is determining eligibility. If you are eligible, follow the steps below to register for VAT:

Step 1: Prepare Relevant Documents

You need various documents to register for VAT. These are:

  • KRA PIN
  • KRA PINs of partners in a Partnership
  • Company KRA PIN in the case of a Limited Liability Company
  • Copy of Company/Business Incorporation Certificate
  • Copy of Business Name Registration Certificate
  • National ID Card of the taxpayer
  • Alien ID for foreign business owners
  • Record of actual taxable turnover of Ksh. 5 million in the past 1 year
  • Physical business enterprise
  • Email address

After gathering these documents, the next part is to access the iTax portal for registration.

Step 2: Log in to iTax

Use your KRA PIN and password to sign in to iTax.

Step 3: Go to the Registration Section

Navigate to the Registration menu. Click on Amend PIN Details so that you can add VAT as a tax obligation.

Step 4: Complete The VAT Application Form

Fill out the form a required, entering the needed details. These include turnover evidence, bank details, contact details, and physical business location.

Step 5: Submit the Application

Verify that your application form is filled out to the best of your ability and that every detail is accurate, then submit the application. You’ll see a Submit button at the bottom of the page. KRA will send an acknowledgement number that you can use to track your application status.

Step 6: Approval by KRA and Certificate Issuance

KRA will review your application. If you meet their conditions, they will approve your application and send you a VAT registration certificate. This certificate contains a VAT registration number that you’ll use to file VAT returns and generate electronic tax invoices.

Monthly VAT Filing in Kenya: Step-by-Step Process

As a VAT taxpayer, you’re required to file your VAT returns every month. The deadline is the 20th day of the following month. For instance, you file January VAT returns on or before the 20th day of February.

Before you can pay and file VAT returns, you need to register on the eTIMS portal. By onboarding on this platform, you can easily generate and transmit electronic tax invoices to KRA in real time.

You can integrate the TIMS software with your point of sale (POS)or enterprise resource planning (ERP) systems in your business (for large businesses) or using a mobile app (for small businesses).

After onboarding on eTIMS, you can now generate the electronic tax invoices. The invoice contains the following:

  • Breakdown of the VAT tax charged on earnings.
  • Invoice control number

With that, you’re now all set to pay and file your VAT monthly returns.

Note: The due date applies to both the tax payment and filing the returns. Returns are done online via the iTax portal. On the other hand, tax payments can be done via bank transfers and MPESA Paybill.

Failure to comply attracts a penalty and interest. Below are the penalties for late payment and filing of VAT returns:

  • Penalty: Ksh 10,000 or 5% of the payable tax, whichever is higher.
  • Interest: 1% of unpaid VAT for every month

How to File Monthly VAT Returns in Kenya

Follow these steps to pay and file your monthly VAT return:

  1. Go to itax and log in to your account using the KRA pin and password.
  2. Navigate to Payments and choose Payment Registration.
  3. Select VAT under the Tax head.
  4. Under Payment Type, choose Self-Assessment.
  5. Select the tax period.
  6. Select the liability and click Add.
  7. Navigate to Mode of Payment and select either Other Payment Mode or RGTS.
  8. Verify all the details and click Submit.
  9. The system will autogenerate a Payment slip. Download the slip and use it to make the payment.
  10. Pay the due tax using a bank transfer or M-Pesa.

That’s all. You have successfully paid and filed your monthly VAT returns to KRA.

Tips for Staying VAT Compliant in Kenya

Do you want to stay VAT compliant and avoid penalties? Follow these tips:

  • Keep track of new developments and updates in KRA policy changes.
  • Do your due diligence on VAT best practices.
  • Invest in accounting software and ERP systems that seamlessly integrate with KRA’s TIMS.
  • Consult a tax expert.

Looking to simplify your VAT compliance journey? Gichuri & Partners is your trusted tax compliance partner. We serve businesses of all sizes, from large corporations and LLPs to SMEs and start-ups. Book an appointment today.

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Privacy Policy

How to Register for a KRA PIN in Kenya

A KRA PIN is necessary in most monetary, legal, and business processes in Kenya. You need a PIN for various purposes, from simple processes like opening a bank account and applying for loans, to more meaningful things like exporting goods and purchasing property. You can register for a KRA PIN in Kenya as an individual, business, or non-resident. We’ve compiled this detailed step-by-step guide to help you register for a KRA PIN in Kenya. Keep reading to learn more.

What is a KRA PIN?

According to the Kenya Revenue Authority (KRA), a KRA PIN is a personal identification number that identifies you for various purposes, such as transactions with KRA, government agencies, and relevant service providers.

Think of a special number that identifies you in legal, official, and business transactions, instead of your name. Names can be similar. You’ve probably met someone with the exact three names as someone you know, including the middle and surname, yet they are a different person. That can’t happen with a KRA PIN. Every individual or business has a unique PIN, an 11-character code that’s exclusive to them.

Who Should Register for a KRA PIN?

Is a KRA PIN mandatory in Kenya? Yes, it is mandatory for all income earners. KRA requires every resident and non-resident earning an income in Kenya to register for a PIN for tax purposes. You should register for a KRA PIN if you are:

  • Employed
  • A landlord or landlady (earns rental income)
  • A business person
  • HELB applicant
  • Taking part in the following transactions:
  • Title registration, payment of land rent, and stamping of instruments by the Commissioner of Lands
  • Application for business permit
  • Payment of water and power deposits
  • Vehicle registration
  • Business/company registration
  • Underwriting policies by Insurance Companies
  • Imports, customs clearing, and forwarding
  • Facilitation of contracts, tenders, etc, to supply goods to the government and public institutions

If you fall under any of the above categories, let’s show you how to register for a KRA PIN in Kenya below.

How to Register for a KRA PIN in Kenya

KRA offers PINs to individuals and entities, including companies, trusts, and Non-Governmental Organisations (NGOs). In this regard, KRA PINs are broadly divided into individual KRA PINs and non-individual KRA PINs. Let’s look at the steps to register for a KRA PIN in Kenya, whether individual or non-individual.

How to Register for an Individual KRA PIN

Here is a step-by-step guide on how to register for an individual KRA PIN:

Step 1: Access the KRA iTax Portal

Step 2. Navigate to New PIN Registration

  • Go to the New PIN Registration section and click on the provided link.
  • The link will direct you to a new tab.

Step 3: Choose Your Taxpayer Type and Mode of Registration

  • Click on Tax Payer Type and select Individual.
  • Click on Mode of Registration and select Online Form.
  • Select Yes or No depending on whether you want to register for a PIN with no obligation, e.g., for students with no income.
  • Click Next to go to the next section of the form.

Step 4: Fill Out the PIN Registration Form

  • Fill out the online form as required.
  • Critical data includes your basic information, contact details, addresses, employment details, and tax obligation details.
  • Upload any required documents.

Step 5: Submit the Application

  • Submit the filled-out form.
  • KRA will acknowledge receiving the form by sending an online acknowledgement receipt.
  • The receipt contains a reference number that you’ll use to track the approval status.

That’s all. Once KRA has verified your details and approved the application, you’ll receive your new KRA PIN.

How to Register for a Non-Individual KRA PIN

As we mentioned earlier, a non-individual KRA PIN caters to an entity that includes more than one person. These include businesses, limited companies, partnerships, trusts, and NGOs.

Note: While a sole proprietorship is a business entity, it doesn’t fall under non-individual PIN registration. Such a business uses the proprietor’s individual PIN for legal and financial transactions. Here are the steps to register for a non-individual KRA PIN in Kenya:

Step 1: Access the KRA iTax Portal

Step 2. Navigate to New PIN Registration

  • Go to the New PIN Registration section and click on the provided link.
  • The link will direct you to a new tab.

Step 3: Choose Taxpayer Type and Mode of Registration

  • Click on Taxpayer Type and select Non-Individual.
  • Click on Mode of Registration and select Online Form.
  • Click Next to go to the next page.

Step 4: Fill out the PIN Registration Form

  • Fill out the required details, including business basic information, tax obligation details, director and partner details, and tax agent (if any).
  • If you don’t have a tax agent, skip the section.
  • Answer the final question.

Step 5: Submit the Application

  • After completing the form, click Submit.
  • KRA will send you an acknowledgement receipt with a reference number. You’ll use this number to track the application.

Upon approval, KRA will send you the PIN certificate with your new PIN.

Benefits of a KRA PIN and Why You Need One

A KRA PIN is a necessity for most legal, business, and financial activities in Kenya. Here’s why you need a KRA PIN:

  • Legal Compliance: Legal compliance is essential for every adult individual and legal entity. KRA demands that every person or business with an income acquire a PIN for tax purposes.
  • Access to Services: Various services in Kenya require a KRA PIN, from applying for higher education loans (HELB) and grants to opening bank accounts.
  • For Business, Legal, and Financial Transactions: A KRA PIN is mandatory for various business, legal, and financial transactions like registering land titles, motor vehicles, real estate, and companies. Other activities that require this PIN are underwriting insurance policies, obtaining public utilities like water and electricity, and bidding for government tenders.
  • Tax Compliance: Having a KRA PIN simplifies your tax processes. You can file your individual or business returns online via the iTax portal easily.
  • Credibility: Having a KRA PIN cements your credibility. Government agencies, investors, business partners, banks, and other financial institutions find you trustworthy to conduct business with.

Tips for a Smooth KRA PIN Registration Process

Follow these tips to streamline your KRA PIN registration process:

  • Prepare required documents beforehand: Identify the required documents like copies of identity cards, passports, passport photos, company documents, etc. Prepare them beforehand to make it easy to upload them online.
  • Verify your documents to avoid rejection: KRA may reject your application for small errors and inconveniences like unclear copies of documents and photos. Double-check to ensure everything is clear and professional.
  • Follow up: KRA provides a reference number to track your application. Follow up with KRA customer care to get updates on your application status.
  • Seek assistance from experts: For an overall smooth application process and prompt approval, work with a tax expert. An expert will provide expert guidance and comprehensive support that saves you time and headaches.

Are you looking for assistance with KRA PIN registration? Gichuri & Partners is a leading tax consultancy in Kenya, specializing in tax compliance services. Contact us for quick and hassle-free KRA PIN registration. Let’s help you stay compliant and access legal and financial services by obtaining a KRA PIN.

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KRA Demand Notice

KRA Tax Compliance Certificate : Application Process and Requirements 

A Tax Compliance Certificate (TCC) is an official document issued by the Kenya Revenue Authority (KRA) to prove that you have paid all your taxes and filed all relevant returns. It is also known as a tax clearance certificate, and is a requirement in various legal and business transactions.

Several transactions and activities require a TCC in Kenya, including applying for government tenders, registering a business license, and applying for jobs. Whether you are an individual or a business, understanding the TCC application process and requirements is crucial. We prepared this guide to show you how to apply for the KRA TCC and the requirements.

Importance of KRA Tax Compliance Certificate

A KRA tax compliance certificate comes in handy in various instances. It’s a requirement in the following situations, among others:

  • Job application
  • Government tender application
  • Application for a clearing and forwarding agent license
  • Application for work permit renewal
  • Application for liquor store operating license
  • You are curious about your tax compliance status

TCC Eligibility Criteria (Requirements)

KRA can approve or reject your TCC application, depending on several factors. It is important to know whether you even qualify for the certificate before wasting time and resources applying for one. So, who qualifies for a TCC? Below are the TCC requirements in Kenya:

  • You have a valid KRA PIN
  • You have filed all due tax returns
  • You have paid all outstanding taxes and have no penalties

What Documents and Information are Required To Apply for TCC in Kenya?

Once you’ve determined you’re eligible for a KRA tax clearance certificate, the next step is to prepare the documents and information required to complete the application process. Preparing these documents beforehand will simplify the application and save time. Below are the required documents to apply for KRA TCC:

  • KRA PIN
  • National ID
  • Certificate of Incorporation (for businesses)
  • An up-to-date tax return history, like business invoices for VAT, payslips for PAYE, KRA Acknowledgement receipts, etc.
  • Relevant tax obligations like Income tax, PAYE, VAT, MRI, etc.

Now that you’ve all the information and documents needed for the application process, let’s get into the steps. KRA TCC application is conducted online via the iTax portal.

How to Apply for KRA Tax Compliance Certificate: Step-by-Step Guide

Here’s the step-by-step guide to applying for a KRA tax compliance certificate in Kenya:

Step 1: Access the KRA Portal

Visit the iTax Portal on a web browser.

Log in to your account using your KRA PIN and password. Follow the on-screen instructions, like solving an arithmetic question, to complete the login process.

Step 2: Navigate to the Certificates Section

Once you’ve logged into your account, navigate to the Certificates section. Click on the menu and select Apply for Tax Compliance Certificate (TCC).

You will be taken to a new window with a form.

Step 3: Fill Out the Online Application Form

The website will autofill the TCC application form with your details, including KRA PIN, name, address, personal, and business information. Verify the details to ensure they are accurate. If you need to update some of the details, like phone number and email addresses, do so. You’ll also be asked why you are applying for the TCC certificate. Select the applicable reason.

Step 4: Submit the Application

Quickly go over your completed form one last time to verify that all the information is correct. Once you’re satisfied, click Submit to tender the application to KRA.

Step 5: Wait for Feedback

KRA will assess your application and provide feedback as soon as possible. If the application was successful, i.e, you don’t have pending tax returns and penalties, etc, the system will autogenerate an approval message alongside the TCC certificate.

Note: If there are pending issues with KRA, like tax debts, unfiled returns, or penalties, KRA will send you an alert to resolve the matter. You will only get a TCC certificate if you solve this issue. An approval message from KRA reads,

“Auto Approval for Tax Compliance Certificate has been submitted successfully.” Alongside this message is an acknowledgment number and a download link for the tax compliance certificate.

Step 6: Download the Tax Compliance Certificate

Once you receive the approval notification, the acknowledgement number, and the download link, you’re good to go. Click on the provided download link to download the tax compliance certificate. This certificate is valid for 12 months.

Tax Compliance Certificate Application Tips to Avoid Rejection

KRA might reject your TCC application for various reasons. You need to understand common reasons for rejection to avoid them. Here are some of the common reasons why the KRA TCC application is declined:

  • Pending tax returns and debts
  • Incorrect personal and business information
  • Incomplete tax obligations. For example, a retailer who only files income tax, even though they are eligible for VAT.
  • Audit inconsistencies and flagged accounts

If your TCC application has been declined and the online steps to rectify the issue do not resolve the issue, contact KRA customer care. You can do so on the KRA website or visit your nearest KRA office.

Bonus Tips For a Smooth TCC Application

If you want to have an easy time with tax compliance certificate application and renewal, you need to maintain a good reputation with KRA. Follow these tips to ensure a smooth TCC application:

  • File your taxes on time
  • Ensure you fulfill all your tax obligations
  • Seek assistance from an expert tax consultant

Final Thoughts

The KRA tax compliance certificate is important to individuals and businesses alike. It is required in various legal and business contexts, and obtaining it when needed is crucial. This detailed guide explained what a TCC entails, the requirements, and how to apply for one in Kenya.

Applying for a TCC is straightforward, but you can never go wrong by hiring an expert to handle it for you. At Gichuri & Partners, we provide comprehensive tax compliance services, including the application for a KRA TCC certificate.

Our expert team will facilitate the whole application process to ensure all required data is provided accurately for prompt approval. We will help you identify all your tax obligations, file returns on time, and resolve any pending issues in case of initial rejection. Need help with your KRA tax compliance certificate application? Let our expert tax consultants handle it for you- a quick, accurate, and hassle-free application. Get in touch.

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KRA Demand Notice

Understanding the KRA VAT Special Table in Kenya

In recent years, the Kenya Revenue Authority (KRA) has stepped up its tax compliance measures to combat fraud and boost revenue collection. One such initiative is the KRA VAT Special Table, a listing that strikes fear into many businesses—often with good reason. But what exactly is it, how does a business end up on it, and what can be done to avoid or get off it? This blog post will walk you through everything you need to know about the VAT Special Table: its purpose, implications, causes, and steps for removal.

What is the KRA VAT Special Table?

The KRA VAT Special Table is an internal compliance tool used by the Kenya Revenue Authority to list VAT-registered taxpayers suspected of fraudulent activities. These include:

  • Issuing fictitious tax invoices.
  • Engaging in missing trader schemes.
  • Not remitting VAT collected from clients.
  • Claiming VAT input from non-existent or invalid suppliers.

Being listed on the Special Table can have significant operational and reputational consequences for your business.

How Do You Know If You Are On the VAT Special Table?

There’s no formal public announcement made when a company is listed. However, signs that your business has been flagged include:

  • Your clients are unable to claim input VAT from your invoices.
  • You receive notices or queries from KRA regarding your returns or suppliers.
  • An alert from the KRA iTax system stating that your PIN is under compliance review.

Why Does KRA Use the Special Table?

The VAT Special Table is part of KRA’s enforcement strategy under the VAT Act, 2013. It targets “missing trader” fraud, where companies issue or receive fake VAT invoices to inflate their input VAT and reduce their tax liability illegally. This tactic causes billions in lost revenue annually, prompting the KRA to tighten its audit and enforcement mechanisms.

Common Reasons for Getting Listed on the VAT Special Table

Understanding why businesses are flagged can help you avoid falling into the same trap. Common triggers include:

  • Claiming input VAT from suppliers listed on the Special Table.
  • Failure to file VAT returns or consistently filing nil returns.
  • Mismatches between your declared output VAT and client feedback.
  • Significant variance between declared purchases and sales.
  • Being linked to a tax evasion ring or non-existent supplier networks.

Implications of Being on the VAT Special Table

If your business is listed, the consequences can be severe:

  • Loss of Input VAT Claims: Your customers will not be able to claim VAT on your invoices.
  • Audits and Investigations: You may be subject to a comprehensive VAT audit.
  • Reputational Damage: Clients may stop doing business with you for compliance reasons.
  • Legal Liability: KRA can pursue tax penalties, interest, and even prosecution.

How to Get Off the KRA VAT Special Table

Getting off the VAT Special Table requires proactive effort. Here’s what to do:

Engage a Tax Consultant or Lawyer : Work with a professional to help you navigate the process and communicate effectively with KRA.

Submit a Formal Request : Write a formal letter to KRA requesting removal from the Special Table, detailing your case and attaching supporting documents (e.g., proof of transactions, supplier contracts, delivery notes).

Provide Evidence of Compliance : You may need to demonstrate that your transactions are legitimate, and taxes have been properly accounted for.

Attend Compliance Interviews : KRA may invite you for a compliance interview. Be transparent and cooperative.

Amend VAT Returns if Necessary : If errors are found in past VAT returns, amend them via iTax to reflect accurate information.

Pay Outstanding Taxes and Penalties : KRA may require settlement of any outstanding tax liabilities before removal.

How to Avoid the VAT Special Table

Prevention is better than cure. Here are practical tips to stay compliant and avoid the Special Table:

  • Conduct Due Diligence on Suppliers: Check their compliance status before claiming input VAT.
  • File VAT Returns on Time: Avoid delays and ensure they are accurate.
  • Maintain Proper Records: Keep invoices, delivery notes, and payment proofs.
  • Use Registered ETR Devices: Only generate VAT invoices using approved systems.
  • Engage a Certified Tax Agent: Regular health checks from professionals can help detect issues early.

What to Do If a Supplier is on the VAT Special Table

If you discover that a supplier is listed:

  • Stop transacting with them immediately.
  • Review all past invoices issued by them.
  • Engage KRA to seek advice on how to rectify previous claims.
  • Amend your returns if needed and provide explanations.

Conclusion

Being listed on the KRA VAT Special Table is not the end of your business but it is a serious red flag. It indicates that your VAT practices are under scrutiny and possibly non-compliant. The best course of action is to remain proactive: work with qualified tax experts, conduct supplier checks, maintain clean records, and stay updated on your VAT obligations. If you suspect your business has been listed or want to prevent that risk, Gichuri & Partners can help. We specialize in tax compliance, VAT health checks, and representing clients before the KRA.

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KRA Demand Notice

Filing Auto Populated VAT Return

Value Added Tax (VAT) is a significant source of revenue for the Kenyan government. It is imposed on the supply of goods and services at every stage of production and distribution. As a business owner or a self-employed individual, filing VAT returns is not only a legal requirement but also a crucial part of maintaining compliance with tax regulations. In Kenya, VAT returns are submitted electronically through the Kenya Revenue Authority (KRA) online platform, iTax. This blog post will walk you through the VAT filing process, ensuring you understand every step to avoid penalties and ensure compliance.

Who Should File VAT Returns?

VAT applies to businesses that supply taxable goods or services with an annual turnover exceeding Ksh 5 million. Additionally, businesses that voluntarily opt for VAT registration must file returns. Common categories include:

  • Importers of goods
  • Suppliers of taxable services
  • Manufacturers
  • Retailers and wholesalers

If you fall into any of these categories, you must file monthly VAT returns with the KRA.

Understanding VAT Rates in Kenya

Kenya imposes three VAT rates:

  • Standard Rate (16%): This applies to most goods and services in Kenya.
  • Zero-rated (0%): This is applied to exports and certain categories like medical supplies.
  • Exempt: Some goods and services, such as financial services and certain agricultural products, are exempt from VAT.

Understanding which category your business activities fall under is crucial when filing VAT returns.

How to Register for VAT on iTax

If you are required to file VAT returns, the first step is to register your business for VAT. Here’s how to register through the iTax platform:

  • Visit the KRA iTax portal https://itax.kra.go.ke.
  • Log in using your KRA PIN and password.
  • Navigate to the “Registration” tab and select “Amend PIN Details.”
  • In the “Tax Obligation Details” section, select VAT.
  • Submit your application, and KRA will review and approve your VAT registration.

Once your VAT registration is complete, you will receive a VAT Certificate from KRA.

Documents and Information Required for VAT Filing

Before you start filing your VAT returns, ensure you have the following details:

  • Invoices for sales and purchases: Ensure all VAT-inclusive invoices are accurate and readily available.
  • Credit notes and debit notes: Any adjustments to your VAT must be supported with these documents.
  • Import declarations (if applicable): For businesses importing goods, you will need your import declaration forms (IDF) and customs documents.
  • KRA PIN and iTax login credentials: This is mandatory to access the iTax platform.
  • Step-by-Step Process of Filing VAT Returns on iTax

Step 1: Log in to iTax Portal

Go to iTax and log in using your KRA PIN and password.

Step 2: Navigate to VAT Returns

Once logged in, navigate to the “Returns” tab, and select “File Returns.” Choose VAT as the tax obligation.

Step 3: Download the VAT Excel Template

KRA provides a VAT return form in an Excel template format (VAT3 form). Download the template and ensure it’s the correct version for the tax period.

Step 4: Fill in the VAT Template

The VAT3 template requires you to input details of your taxable sales and purchases, including:

  • Sales (output VAT): Input the total sales for the period and the VAT charged at 16%, 0%, or the exempt rate.
  • Purchases (input VAT): Input the total purchases and the corresponding VAT you paid.

Ensure accuracy in entering the amounts, as mistakes can result in penalties or additional scrutiny from KRA.

Step 5: Validate and Upload the Form

Once the template is fully filled, validate it using the built-in validation tool in the Excel sheet. After validation, save the validated form as a zip file.

Step 6: Upload the VAT Return

Return to the iTax portal, navigate to the “Returns” tab, and click on “Upload VAT Return.” Browse and select the validated VAT3 file, then submit.

Step 7: Acknowledge the Return

Once submitted, you will receive an acknowledgment receipt from KRA, which serves as proof of filing. You can download this receipt and save it for future reference.

Payment of VAT Due

If your VAT return shows that you owe KRA any VAT, you must make the payment by the due date, which is the 20th of the following month. Late payment or failure to file on time will attract penalties.

Payment Methods

  • iTax Pay: You can generate a payment slip through iTax and pay via banks or mobile money services like M-Pesa.
  • Bank Transfer: Payments can be made directly to KRA through its partner banks.
  • Real-Time Gross Settlement (RTGS): For larger amounts, RTGS can be used.

After making payment, you should receive an e-slip and an acknowledgment from KRA that your VAT has been paid.

VAT Refunds and Credits

If your input VAT (the VAT you pay on purchases) exceeds your output VAT (the VAT you charge on sales), you may be eligible for a refund. KRA allows VAT-registered businesses to apply for a refund under certain conditions. However, this process can be lengthy, and you must provide sufficient documentation to support your claim.

You can also carry forward any excess input VAT to offset future VAT liabilities.

Penalties for Late Filing or Payment

Failure to file VAT returns or pay VAT on time can result in penalties, including:

  • Late filing penalty: Ksh 10,000 or 5% of the VAT payable, whichever is higher.
  • Late payment penalty: 5% of the VAT due, plus 2% interest per month on the outstanding amount.

To avoid these penalties, it is essential to file your VAT returns on time and ensure payment is made by the due date.

Common Mistakes to Avoid When Filing VAT Returns

  • Failing to keep proper records: Ensure all invoices and receipts are kept for at least five years as KRA may request them for audits.
  • Incorrect VAT calculations: Always double-check your input and output VAT amounts to avoid errors.
  • Failing to file nil returns: Even if no business was conducted, VAT-registered businesses are required to file a nil return.

Conclusion

Filing VAT returns in Kenya may seem complex, but with the iTax system and proper record-keeping, the process is relatively straightforward. Following the steps outlined in this guide will help you file your returns correctly and on time, avoiding penalties and ensuring that your business stays compliant with Kenyan tax laws. If you have any difficulties or need professional assistance, feel free to reach out to Gichuri & Partners for expert VAT filing services.

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How to Write KRA Waiver Letters

When it comes to dealing with Kenya Revenue Authority (KRA) requirements, sometimes individuals and businesses may need to request a waiver for various tax-related obligations. Crafting a well-written KRA waiver letter is crucial to ensure your request is considered and processed efficiently. This guide will walk you through the essentials of writing a KRA waiver letter, helping you present your case effectively.

Understanding a KRA Waiver Letter

A KRA waiver letter is a formal request to the Kenya Revenue Authority seeking relief from specific tax obligations or penalties. This letter should be clear, concise, and include all necessary information to support your request. The goal is to convince the KRA to grant your waiver based on the circumstances you present.

Key Components of a KRA Waiver Letter

  • Your Contact Information: Start with your full name, address, and contact details. If you’re writing on behalf of a business, include the business name and registration number.
  • Recipient’s Information: Address the letter to the appropriate KRA office or officer. Include their name (if known), title, and the KRA office address.
  • Subject Line: Clearly state the purpose of your letter. For example, “Request for Waiver of Penalty” or “Application for Tax Waiver.”
  • Salutation: Use a formal salutation such as “Dear Sir/Madam” or “To Whom It May Concern.”
  • Introduction: Briefly introduce yourself or your business and state the purpose of your letter. Mention the specific tax obligation or penalty for which you are requesting a waiver.
  • Detailed Explanation: Provide a detailed explanation of why you are requesting the waiver. This section should include:
  • Reason for Request: Explain why you believe you qualify for a waiver. This could include financial hardship, error, or other extenuating circumstances.
  • Supporting Documentation: Reference any documents you have included that support your request. This might include financial statements, tax records, or correspondence with KRA.
  • Request for Consideration: Clearly state what you are asking for, whether it’s a full waiver or a reduction in the penalty. Be specific about the relief you are seeking.
  • Conclusion: Reiterate your request and express appreciation for their consideration. Provide your contact information again for follow-up.
  • Signature: End with a formal closing such as “Sincerely” or “Yours faithfully,” followed by your signature (if sending a hard copy) and printed name.

Tips for a Successful KRA Waiver Letter

  • Be Honest and Accurate: Ensure all information provided is truthful and accurate.
  • Stay Professional: Use a formal tone and professional language throughout the letter.
  • Follow-up: After sending your letter, follow up with KRA to confirm receipt and inquire about the status of your request.

By following these guidelines, you can create a compelling KRA waiver letter that increases your chances of receiving the desired relief. For more detailed assistance or advice, visit Gichuri Partners.

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Steps to File Your KRA iTax Return

Filing your tax returns is an essential responsibility for every Kenyan citizen and business. The Kenya Revenue Authority (KRA) has streamlined this process through the iTax system, making it more accessible and efficient.  Gichuri & Partners, a leading tax advisory firm, provides expert guidance to ensure you navigate this process smoothly. Here’s a comprehensive guide on how to file your KRA iTax return.

What is iTax?

iTax is an online tax filing system developed by the Kenya Revenue Authority (KRA) to simplify the tax submission process for individuals and businesses. It allows taxpayers to register, file returns, and make payments online, reducing the need for physical visits to KRA offices.

Why Choose Gichuri & Partners for Tax Filing?

Gichuri & Partners is a renowned firm specialising in tax advisory and compliance services in Kenya. Their team of experienced professionals offers tailored solutions to meet the specific needs of individuals and businesses, ensuring compliance with tax regulations while optimising tax benefits.

Steps to File Your KRA iTax Return

1. Register for an iTax Account

  • Visit the  iTax portal.
  • Click on ‘New PIN Registration’ and follow the prompts to register.
  • You will receive a PIN, which is your unique tax identification number.

2. Gather Necessary Documents

  • Ensure you have your P9 form (for employees), business income details, withholding certificates, and any other relevant documents.

3. Log into Your iTax Account

  • Use your PIN and password to log into the iTax portal.
  • If you have forgotten your password, use the ‘Forgot Password’ option to reset it.

4. Download the Relevant Form

  • Navigate to ‘Returns’ and select ‘File Return.’
  • Choose the appropriate form based on your taxpayer category (individual, business, etc.).

5. Fill in the Return Form

  • Enter your income details, tax withheld, allowable deductions, and any other necessary information.
  • Ensure accuracy to avoid discrepancies.

6. Upload the Completed Form

  • Once completed, upload the form to the iTax portal.
  • The system will validate the form and provide a summary of your tax return.

7. Submit the Return

  • After reviewing the summary, click ‘Submit.’
  • You will receive an acknowledgment receipt. Save this for your records.

8. Make Any Necessary Payments

  • If there is tax payable, generate a payment slip from the iTax portal.
  • You can pay via various methods, including bank transfer, mobile money, or through authorised KRA agents.

Common Challenges and How Gichuri & Partners Can Help

Filing taxes can be complex, especially for businesses with multiple income streams and deductions. Common challenges include:

  • Understanding Tax Laws: Gichuri & Partners provides clarity on applicable tax laws and regulations.
  • Accurate Record Keeping: Their team assists in maintaining proper financial records to ensure accurate tax filings.
  • Timely Submission: They offer reminders and support to ensure timely filing, avoiding penalties and interest charges.

Conclusion

Filing your  KRA iTax return doesn’t have to be daunting. With the right guidance from Gichuri & Partners, you can ensure compliance and optimize your tax benefits. Whether you’re an individual or a business, their expert services make tax filing straightforward and stress-free. For personalized tax assistance, contact Gichuri & Partners today and simplify your tax filing process.

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Onboarding E-TIMS for Small Businesses

In the dynamic landscape of Kenya’s business environment, staying ahead means embracing technological advancements. One such innovation revolutionizing business operations is Electronic Tax Invoice Management System (E-TIMS). For small businesses in Kenya, adopting E-TIMS is not just about compliance; it’s a strategic move towards efficiency, accuracy, and growth. In this comprehensive guide, we’ll delve into the intricacies of onboarding E-TIMS and explore how firms like Gichuri & Partners can facilitate this transition while empowering small businesses.

Understanding E-TIMS

E-TIMS is a digital platform developed by the Kenya Revenue Authority (KRA) to automate the issuance and management of tax invoices. It aims to enhance tax compliance, curb tax evasion, and streamline administrative processes. The system enables businesses to generate, submit, and store electronic tax invoices and receipts securely.

Benefits of E-TIMS for Small Businesses:

1. Compliance:

With stringent tax regulations in Kenya, compliance is non-negotiable for businesses. E-TIMS ensures adherence to tax laws by automating invoice generation and submission processes, minimizing errors, and reducing the risk of non-compliance penalties.

2. Efficiency:

Manual invoice generation and record-keeping are not only time-consuming but also prone to errors. E-TIMS simplifies these tasks by providing a centralized platform for invoice management. This boosts operational efficiency, allowing businesses to focus on core activities.

3. Cost Savings:

By eliminating the need for paper-based invoicing and manual record-keeping, E-TIMS helps businesses cut costs associated with stationery, storage, and manpower. Moreover, the reduction in errors minimizes the risk of financial losses due to inaccuracies in tax reporting.

4. Improved Cash Flow:

Faster invoice processing and accurate tax calculations lead to expedited payments from customers and timely tax submissions. This, in turn, improves cash flow management and enables businesses to invest resources in growth initiatives.

Onboarding E-TIMS: A Step-by-Step Guide:

Step 1: Registration

The first step towards adopting E-TIMS is registering your business on the KRA portal. This involves providing necessary details such as business name, tax identification number (TIN), and contact information. Once registered, businesses receive login credentials to access the E-TIMS platform.

Step 2: System Familiarization

Gaining familiarity with the E-TIMS interface and functionalities is crucial for seamless integration into your business operations. KRA provides comprehensive training materials, including user manuals and video tutorials, to help businesses navigate the platform effectively.

Step 3: Invoice Generation

Using E-TIMS, businesses can generate electronic tax invoices in real-time for goods and services rendered. The system automatically captures relevant transaction details, such as invoice number, date, and amount, ensuring accuracy and compliance with tax regulations.

Step 4: Submission and Verification

Once invoices are generated, they are submitted to the KRA portal for verification and validation. The system performs checks to ensure compliance with tax laws and issues a unique identification number (UIN) for each invoice. Verified invoices are then stored securely in the E-TIMS database.

Step 5: Record-Keeping

Maintaining organized records is essential for tax audits and financial reporting. E-TIMS simplifies record-keeping by storing all electronic invoices and receipts in a centralized repository. Businesses can easily retrieve and export these records for compliance purposes.

How Gichuri & Partners Can Help:

Gichuri & Partners, a leading consultancy firm specializing in tax and business advisory services, plays a pivotal role in assisting small businesses with E-TIMS onboarding. Here’s how they can add value:

Expert Guidance

Navigating the complexities of tax regulations and digital platforms like E-TIMS can be daunting for small business owners. Gichuri & Partners offer expert guidance and support throughout the onboarding process, ensuring businesses remain compliant and operationally efficient.

Tailored Solutions

Every business is unique, and Gichuri & Partners understands this diversity. They provide tailored solutions that align with the specific needs and objectives of each client, whether it’s streamlining invoicing processes, optimizing tax planning, or enhancing financial management.

Continuous Support

E-TIMS onboarding is just the beginning of the journey towards digital transformation. Gichuri & Partners offer ongoing support and advisory services to help businesses leverage the full potential of E-TIMS and stay ahead in an evolving business landscape.

Conclusion

Embracing E-TIMS is not merely a compliance requirement; it’s a strategic imperative for small businesses in Kenya. By automating invoice management processes, improving efficiency, and ensuring tax compliance, E-TIMS empowers businesses to thrive in a competitive environment. With the guidance and support of consultancy firms like Gichuri & Partners, businesses can navigate the digital landscape with confidence, driving growth and success in the long run.

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Turnover Tax in Kenya

Turnover Tax (TOT) is one of the most controversial taxations in Kenya. It was introduced in 2008 through the Finance Act 2007, to simplify how small and medium-sized enterprises (SMEs) file their taxes. The introduction was met with some resistance as businesses argued the new tax would burden small businesses. This led to its suspension in 2010 to the relief of SMEs. Yet, the government was worried that these businesses would evade taxation with its suspension because other tax obligations barely captured the revenue from the informal sector.

Recognizing the need for revenue collection in the informal sector and the need to distribute the tax burden equally among all citizens, the Kenyan government re-introduced TOT in 2020 via the Finance Act 2019. The taxation has seen significant changes over the years, the latest being a rate increase from 1% to 3% in 2023. This post unpacks everything you need to know about Turnover Tax in Kenya.

Understanding Turnover Tax in Kenya

Turnover Tax is a tax charged on small and medium-sized businesses in Kenya whose annual turnover is between Ksh. 1,000,000 and Ksh. 25,000,000. Turnover is the total amount of money your business makes from the sale of goods or services over a specific period. It is the gross revenue collected from your business before deducting expenses like salaries, business capital, rent, etc.

The rate of turnover tax in Kenya is 3% on gross sales according to the Finance Act of 2023. The new rate took effect in July 2023, rising from the previous 1% based on the Finance Act 2019.

Turnover Tax Eligibility in Kenya

As we mentioned, TOT is exclusive to SMEs. This doesn’t mean every SME in Kenya is obligated to pay this tax. Below are the eligible entities that are expected to pay TOT in Kenya:

  1. Any resident individual or corporation whose business turnover exceeds Ksh.1 million but doesn’t exceed Ksh. 25 million in any year of income.
  2. A TOT registered taxpayer trading VATable supplies. If they have a turnover of Ksh. 5 million and above, KRA demands they register for VAT too.

Note: A person may request to be exempted from TOT by writing to the KRA commissioner. If you do so, KRA will apply other provisions in the Income Tax Act.

TOT Exemptions in Kenya

Which individuals and businesses are exempted from the TOT tax obligation? They include the following:

  • Non-resident taxpayers.
  • Rental income- it’s already subject to another tax regime
  • Management, professional, or training fees
  • Income that’s subject to a final withholding tax under the Income Tax Act. E.g. Dividends and Interests.
  • Employment income- it’s already subject to another tax regime

Who is the Primary Target for Turnover Tax in Kenya?

Turnover Tax in Kenya targets SMEs. The TOT threshold is businesses with an annual turnover of 1-25 million Kenya shillings. These entities include:

  • Small and medium-sized retail shops
  • Informal sector service providers such as hair stylists, salons, barbershops, spas, beauty parlors, and repair shops
  • Small and medium-sized manufacturing enterprises
  • Market traders and hawkers
  • Other SMEs in the informal sector who meet the TOT eligibility criteria

How and When To Submit Turnover Tax in Kenya

Turnover Tax in Kenya is submitted every month. KRA recommends filing this return on or before the 20th day of the month following the end of the tax billing period. For example, you are required to remit January’s TOT on or before the 20th day of February.

As mentioned earlier, the TOT rate is 1.5% of your gross revenue. Calculate this amount and remit it via a KRA-partner bank or MPESA. KRA-partner banks include:

  • Absa Bank (formerly Barclays Bank)
  • Cooperative Bank of Kenya
  • Family Bank 
  • Equity Bank
  • Diamond Trust Bank
  • I & M Bank
  • National Bank of Kenya
  • Kenya Commercial Bank (KCB)
  • NCBA Bank

If your business isn’t registered for Turnover Tax, you need to do so before remitting this tax. Follow the steps below to register for TOT:

  1. Go to https://itax.kra.go.ke/KRA-Portal/ and log in using your KRA PIN and password.
  2. Navigate to the Registration module and select Amend PIN Details.
  3. You’ll see the question “Do you want to register for TOT?” under Section A, basic information. Click Yes.
  4. Go to section B>Obligation Details and select the date of registration of TOT. Submit the application.

How to File Turnover Tax

Follow the steps below:

  1. Visit the KRA portal and log in to your account.
  2. Navigate to the Returns menu and click File Return>Turnover Tax. Download the returns form.
  3. Complete the returns form and submit it.
  4. Go to the Payment Menu. Select Payment>Amount Payable, and generate the payment slip.
  5. Make the required payment via MPESA or KRA-partner bank.

Penalties for Turnover Tax

Failure to file TOT returns or late payment attracts several penalties. 

  • Late filing penalty: If you file your TOT returns later than the agreed date, it attracts a penalty of 1,000 Kenya shillings per month.
  • Late payment penalty: Late payment of TOT tax attracts a penalty of 5% of the due tax.
  • Unpaid tax interest: For every month you don’t pay your TOT tax, a 1% interest is applied to your outstanding balance.

Avoid these penalties by filing your TOT returns and remitting the payments on time. If you need professional help with TOT compliance, we are here to help. Gichuri & Partners is your number-one tax consultant in Kenya.

Pros and Cons of Turnover Tax in Kenya

As we mentioned at the beginning of this article, TOT is one of the most controversial tax obligations in Kenya. It has its fair share of advantages and disadvantages. 

Pros

Some TOT advantages include:

  • A simplified filing and payment process- you can even pay via mobile money services like MPESA
  • Revenue growth for the Kenyan government
  • Shared tax obligation between formal and informal sectors, decreasing the burden on the formal industry
  • Growth opportunities for SMEs. Businesses have formalized their operations in the wake of TOT, which creates an opportunity for growth through better credit access, legal protection, and market share.

Cons

TOT’s drawbacks include:

  • Double taxation- some businesses that pay TOT are also expected to pay VAT, Income Tax, and other tax regimes too. There’s potential for double taxation.
  • It’s exploitative- TOT is based on the gross income, instead of the profits a business makes. It’s deemed exploitative, especially for businesses operating on losses or with thin profit margins.

Conclusion

The Turnover Tax in Kenya ensures the informal sector contributes to national revenue, sharing the tax burden with the formal sector. With good record-keeping and awareness of how it works, it shouldn’t be hard to pay and file your TOT returns. This comprehensive guide discussed everything you need to know about Turnover Tax in Kenya. If you’d like professional assistance or consultancy to be tax compliant, Gichuri & Partners is the best tax consultant in Kenya. Contact us and we will gladly help.

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How to File VAT Returns in Kenya

Learn how to file VAT returns in Kenya using iTax, step by step. Our guide covers registration, requirements, and deadlines for hassle-free tax compliance. Value Added Tax (VAT) is a significant source of revenue for the Kenyan government. It is imposed on the supply of goods and services at every stage of production and distribution.

As a business owner or a self-employed individual, filing VAT returns is not only a legal requirement but also a crucial part of maintaining compliance with tax regulations. In Kenya, VAT returns are submitted electronically through the Kenya Revenue Authority (KRA) online platform, iTax. This blog post will walk you through the VAT filing process, ensuring you understand every step to avoid penalties and ensure compliance.

Who Should File VAT Returns?

VAT applies to businesses that supply taxable goods or services with an annual turnover exceeding Ksh 5 million. Additionally, businesses that voluntarily opt for VAT registration must file returns. Common categories include:

  • Importers of goods
  • Suppliers of taxable services
  • Manufacturers
  • Retailers and wholesalers

If you fall into any of these categories, you must file monthly VAT returns with the KRA.

Understanding VAT Rates in Kenya

Kenya imposes three VAT rates:

  • Standard Rate (16%): This applies to most goods and services in Kenya.
  • Zero-rated (0%): This is applied to exports and certain categories like medical supplies.
  • Exempt: Some goods and services, such as financial services and certain agricultural products, are exempt from VAT.

Understanding which category your business activities fall under is crucial when filing VAT returns.

How to Register for VAT on iTax

If you are required to file VAT returns, the first step is to register your business for VAT. Here’s how to register through the iTax platform:

  • Visit the KRA iTax portal https://itax.kra.go.ke.
  • Log in using your KRA PIN and password.
  • Navigate to the “Registration” tab and select “Amend PIN Details.”
  • In the “Tax Obligation Details” section, select VAT.
  • Submit your application, and KRA will review and approve your VAT registration.

Once your VAT registration is complete, you will receive a VAT Certificate from KRA.

Documents and Information Required for VAT Filing

Before you start filing your VAT returns, ensure you have the following details:

  • Invoices for sales and purchases: Ensure all VAT-inclusive invoices are accurate and readily available.
  • Credit notes and debit notes: Any adjustments to your VAT must be supported with these documents.
  • Import declarations (if applicable): For businesses importing goods, you will need your import declaration forms (IDF) and customs documents.
  • KRA PIN and iTax login credentials: This is mandatory to access the iTax platform.

Step-by-Step Process of Filing VAT Returns on iTax

Step 1: Log in to iTax Portal

Go to iTax and log in using your KRA PIN and password.

Step 2: Navigate to VAT Returns

Once logged in, navigate to the “Returns” tab, and select “File Returns.” Choose VAT as the tax obligation.

Step 3: Download the VAT Excel Template

KRA provides a VAT return form in an Excel template format (VAT3 form). Download the template and ensure it’s the correct version for the tax period.

Step 4: Fill in the VAT Template

The VAT3 template requires you to input details of your taxable sales and purchases, including:

  • Sales (output VAT): Input the total sales for the period and the VAT charged at 16%, 0%, or the exempt rate.
  • Purchases (input VAT): Input the total purchases and the corresponding VAT you paid.

Ensure accuracy in entering the amounts, as mistakes can result in penalties or additional scrutiny from KRA.

Step 5: Validate and Upload the Form

Once the template is fully filled, validate it using the built-in validation tool in the Excel sheet. After validation, save the validated form as a zip file.

Step 6: Upload the VAT Return

Return to the iTax portal, navigate to the “Returns” tab, and click on “Upload VAT Return.” Browse and select the validated VAT3 file, then submit.

Step 7: Acknowledge the Return

Once submitted, you will receive an acknowledgment receipt from KRA, which serves as proof of filing. You can download this receipt and save it for future reference.

Payment of VAT Due

If your VAT return shows that you owe KRA any VAT, you must make the payment by the due date, which is the 20th of the following month. Late payment or failure to file on time will attract penalties.

Payment Methods

  • iTax Pay: You can generate a payment slip through iTax and pay via banks or mobile money services like M-Pesa.
  • Bank Transfer: Payments can be made directly to KRA through its partner banks.
  • Real-Time Gross Settlement (RTGS): For larger amounts, RTGS can be used.

After making payment, you should receive an e-slip and an acknowledgment from KRA that your VAT has been paid.

VAT Refunds and Credits

If your input VAT (the VAT you pay on purchases) exceeds your output VAT (the VAT you charge on sales), you may be eligible for a refund. KRA allows VAT-registered businesses to apply for a refund under certain conditions. However, this process can be lengthy, and you must provide sufficient documentation to support your claim.

You can also carry forward any excess input VAT to offset future VAT liabilities.

Penalties for Late Filing or Payment

Failure to file VAT returns or pay VAT on time can result in penalties, including:

  • Late filing penalty: Ksh 10,000 or 5% of the VAT payable, whichever is higher.
  • Late payment penalty: 5% of the VAT due, plus 2% interest per month on the outstanding amount.

To avoid these penalties, it is essential to file your VAT returns on time and ensure payment is made by the due date.

Common Mistakes to Avoid When Filing VAT Returns

  • Failing to keep proper records: Ensure all invoices and receipts are kept for at least five years as KRA may request them for audits.
  • Incorrect VAT calculations: Always double-check your input and output VAT amounts to avoid errors.
  • Failing to file nil returns: Even if no business was conducted, VAT-registered businesses are required to file a nil return.

Conclusion

Filing VAT returns in Kenya may seem complex, but with the iTax system and proper record-keeping, the process is relatively straightforward. Following the steps outlined in this guide will help you file your returns correctly and on time, avoiding penalties and ensuring that your business stays compliant with Kenyan tax laws. If you have any difficulties or need professional assistance, feel free to reach out to Gichuri & Partners for expert VAT filing services.

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