The Kenya Revenue Authority (KRA) plans major changes to the Value Added Tax Act by scrapping the KSh5 million annual turnover threshold for VAT registration. This would require all businesses, including micro-enterprises, to charge 16% VAT on taxable goods and services and remit it monthly to KRA. The authority claims it will widen the tax base and boost collections from KSh653 billion to over KSh1 trillion.
The Kenya Revenue Authority seeks to amend section 34 (1a) of the VAT Act, eliminating the KSh5 million annual turnover threshold for registration and effectively setting it at zero. All businesses would then serve as VAT agents, including small traders dealing in everyday items like mobile phones, soft drinks, bottled water, cosmetics, snacks, cooking gas, and petroleum products. Service providers such as consultants would also need to include the 16% VAT in their fees. KRA states the move addresses a 38% VAT collection gap and would raise revenues from KSh653 billion to over KSh1 trillion. It could lead to price hikes as traders pass the tax burden to consumers. Previously, the 16% VAT applied to businesses with annual taxable supplies of KSh5 million or more, with smaller ones able to register voluntarily. This proposal contradicts the Finance Bill 2024 and 2025/2026 discussions, which suggested raising the threshold to KSh8 million to ease compliance for small firms. While KRA emphasizes broadening the tax base for better revenue, concerns persist that added compliance could hinder small business growth and force some closures.