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Zero-rated supplies

Zero-rated supplies include, but are not limited to:

  • exports of all goods;

  • exports of taxable services;

  • certain supplies to aid agencies;

  • supplies of goods or taxable services to Export Processing Zones;

  • certain supplies of goods to privileged bodies or persons;

  • ship stores supplied to international sea and air carriers;

  • certain supplies to official aid- funded projects;

  • tea and coffee supplied for export to coffee and tea auction centres;

  • taxable services supplied in respect of goods in transit;

  • taxable airport services supplied to transit aircraft;

  • under 200 kilowatt-hours of electricity for use in a domestic household;

  • taxable goods or services supplied to cotton ginneries;

  • services provided by hotel establishments to nonresident travel and tourism promoters (subject to conditions);

  • supply of goods and taxable services to exporters under prescribed conditions;

  • supply of water drilling and connected services;

  • goods and services for construction of grain silos upon approval by the Director of Agriculture;

  • taxable goods and services to a film producer approved by the Minister for Information;

  • items used for film production, such as photographic film rolls, video- recording or reproducing apparatus;

  • generators and generating sets;

  • bicycles;

  • refrigerated trucks and insulated milk tankers;

  • the treatment and supply of natural water, excluding bottled water, by a local authority or a person approved by the minister for the time being responsible for water development for domestic or for industrial use;

  • the supply of transportation services in respect of agricultural and agro-forest produce;

  • taxable goods and services provided to Kenya Red Cross Society; and

  • taxable goods for emergency relief purposes.

Supplies to official aid-funded projects, privileged bodies or persons and aid agencies may be supplied free of VAT, but only if an exemption certificate is provided. This must be obtained from the Ministry of Finance before importation or local purchase.

The registered supplier is required to retain a copy of the exemption certificate as proof of authority to supply the goods or services at zero rate. Where these goods for which exemption has been granted are subsequently sold, the VAT becomes due and payable.

Input tax

Input tax allowed

Generally, input tax incurred by a VAT-registered person in respect of most expenses incurred and services received for business purposes is deductible. Conversely, input tax is not deductible where:

  • input tax is directly attributable to exempt supplies where the direct attribution method for recovering input tax is applied in calculating the recoverable element of input tax;

  • a valid VAT invoice has not been obtained;

  • the input tax is non-Kenyan VAT;

  • the time period for claiming input tax has expired (input tax must be reclaimed within 12 months of the tax point); or

  • input tax is specifically blocked from recovery.

Input tax expressly denied

Deduction of input tax incurred on the following supplies is specifically denied:

  • all oils for use in vehicles (including motor vehicles and similar vehicles) and in ships, boats and other vessels;

  • passenger cars and minibuses (including repairs, servicing, lease and hire charges);

  • all other motor vehicles unless they are primarily used for making taxable supplies;

  • furniture, fittings and ornaments, unless permanently attached to a building;

  • household or domestic electrical appliances;

  • entertainment services;

  • restaurant services;

  • services received prior to registration date;

  • accommodation services; and

  • taxable supplies for use in staff housing and similar establishments for the welfare of staff.

Partial exemption

Partial exemption arises where a registered business makes both taxable and exempt supplies and the amount of input tax attributable to exempt supplies is more than 5% of his total input tax.

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