If you have ever tried to make sense of VAT in Kenya, you know it can feel like learning a new language. But do not worry, once you break it down, it is much easier to understand. Let us dive into the three major categories of VAT supplies and what they mean for businesses and consumers.
1. Taxable Supplies: Where VAT Actually Applies
Taxable supplies fall under two main groups: standard-rated and zero-rated. Both are considered taxable the only difference is whether VAT is charged or not.
Standard-Rated Supplies
These are the most common items and services in the economy.
VAT charge: 16% (but fuel enjoys a special 8% rate).
Good news for businesses: Any VAT you pay on your inputs (purchases) can be claimed back against your output tax (what you charge customers).
Zero-Rated Supplies
Zero-rated doesn’t mean “not taxable” It simply means VAT is charged at 0%.
And yest hey still count when calculating whether you should register for VAT.
If your business ONLY supplies zero-rate goods or services, you’re entitled to a refund on the VAT you paid on your inputs.
Zero-rated supplies include:
• Exported goods or taxable services
• Supplies to designated foreign aided, funded capital investment projects
• Goods imported or bought by public bodies and privileged institutions
• Water supply, drainage, and drilling services
• Electronic tax registers
• Natural water supplied by local authorities
• Supplies to EPZ (Export Processing Zone) enterprises
2. Exempt Supplies: Completely Outside the VAT Net
Exempt supplies are on the opposite end they are not subject to VAT at all.
If your business deals ONLY in exempt supplies:
• You cannot register for VAT
• Your sales don’t count toward the VAT registration threshold
• You cannot claim input tax on purchases
Common examples of exempt supplies include:
• Mosquito nets
• Materials used for cleaning dairy equipment
• Seeds for sowing (e.g., cotton, sunflower)
• Agricultural, floriculture, and horticulture inputs
• Specialized solar equipment
• Educational materials
• Speed governors
• Medical, dental, veterinary, and nursing services
• Burial and cremation services
• Brokerage services (stock exchange, tea, coffee)
• Car-park services offered by national or county governments
• Conference services for educational institutions
Understanding how supplies are classified for VAT purposes is crucial for staying compliant and for making smart financial decisions. Whether you are running a business, planning to register for VAT, or simply wanting clarity on what gets taxed and what does not, these categories help you navigate the VAT landscape with confidence.
Thank you for reading this article . Have a fruitful day , wont you !!!!!