FAQs
What is input tax deduction?
It is the right of a VAT-registered business to claim back the VAT paid on purchases and imports, as long as those purchases are used to make taxable supplies.
Who is eligible to claim input tax?
Only VAT-registered businesses can claim input tax deductions.
What are the main conditions for input tax deduction?
- You must be VAT-registered.
- The purchase must be for business use in making taxable supplies.
- You must hold a valid electronic tax invoice or customs entry.
- The buyers PIN must be indicated in the electronic tax invoice
- The tax invoice must have been transmitted to KRA
- The seller has declared the sales invoice in their VAT return
- The deduction must be claimed within 6 months from the date of the supply or importation.
What documents are required to support an input tax claim?
- A valid tax invoice from a VAT-registered supplier.
- Import declaration and customs documents (for imports).
- Relevant credit/debit notes where applicable.
Are all purchases eligible for input tax deduction?
No. Input tax cannot be claimed on:
- Purchases not related to the business.
- Purchases in relation to exempt sales.
- Certain restricted items, e.g. passenger cars for personal use and entertainment expenses, unless provided in the ordinary course of the business.
Can input tax be deducted on both local and imported goods/services?
Yes, as long as the VAT was paid and the goods/services are used for taxable business purposes.
What happens if purchases are used for both business and personal purposes?
Only the business-use portion of VAT can be claimed as input tax.
Can input tax be carried forward?
Yes. If input tax is higher than output tax in a tax period, the excess can be carried forward to the next period.
Can input tax be refunded?
Yes. If input tax is higher than output tax in a tax period as a result of making zero-rated sales or VAT withheld by appointed tax withholding agents, the taxpayer can apply for a refund. The refund application should be done within 12 months from when the tax became due and payable.
What has been the Tax Compliance Certificate (TCC) requirements?
For a long time, a Tax Compliance Certificate was issued by KRA where a taxpayer demonstrated compliance in regards to filing returns and payment of all taxes due.
What change has KRA introduced regarding the issuance of a TCC?
KRA has enhanced the TCC application process to include an additional requirement for a person who has income other than employment income to have registered on eTIMS/TIMS before a TCC can be issued.
Is there a legal basis for the additional requirement?
Yes. As stipulated in the Tax Procedures Act Cap 469B (TPA) Section 72 (2) –
The Commissioner may issue a Tax Compliance Certificate, which shall be valid for the period specified in the certificate, upon the applicant fulfilling conditions that the Commissioner may impose.
The TPA was amended in 2023 to require a person who carries on a business to issue an electronic tax invoice through the system established by the Commissioner. Electronic invoicing is therefore a compliance requirement for every business.
When does this change take effect?
The change takes effect immediately and only affects those persons who have business income but have not complied with the law on electronic invoicing.
How does this change benefit compliant businesses?
- Timely and efficient service delivery by KRA.
- Facilitates access to new opportunities and business growth.
- Promotes a fair business environment and a level playing field.
- Enhances credibility and business reputation, fostering trust with business partners.
- Fosters civic duty and patriotism by supporting national development.
Does this change apply to individuals with ONLY employment income seeking to apply for a TCC?
No. The additional requirement to be registered on eTIMS/TIMS before a TCC can be issued only applies to a person who has income other than employment income.
What are the conditions for obtaining a TCC?
- Persons in business must be compliant with eTIMS/TIMS registration.
- File tax returns on or before the due date for all applicable tax obligations.
- Make payment of tax on or before the due date.
- Settle all outstanding tax liability or apply for a payment plan for taxes due.
- Be VAT compliant (including VAT Special Table status)
What happens to TCCs issued before this change?
All previously issued TCCs remain valid for the taxpayers who are compliant with the eTIMS requirement. The taxpayers with TCCs but are not compliant with eTIMS will be given a limited window to comply before any measures to invoke are initiated.
Who is required to register on eTIMS?
All persons in business in Kenya are required to register on eTIMS/TIMS.
Persons in business refers to non-individual entities (body corporates, associations, partnerships, foundations, trusts, joint ventures, etc) and individuals with income other than employment income. The incomes to be declared on eTIMS include:
- Annual Income from any form of business as categorised in the annual return - for the entities listed above and individuals, both resident and non-resident, with a permanent establishment.
- Income earned by taxpayers with the following tax obligations –
- VAT
- Monthly Rental Income (MRI)
- Turnover Over Tax (TOT)
- Excise
- Income earned by persons carrying out any business in various sectors, including the informal sector (small and micro businesses, SMEs).
Refer to the KRA website for more information on eTIMS:
How can I register for eTIMS?
Refer to the KRA website for more information on how to register on eTIMS:
How do persons/ businesses exempted from eTIMS apply for a TCC?
KRA will facilitate the taxpayers to apply for TCC at their Tax Service Office (TSO).
Refer to the KRA website for the business expenses that are exempted from the requirement of being supported by an eTIMS invoice:
