Zero rating of exportation of services in Kenya
It’s a new dawn for the service industry in Kenya because the Finance Act of 2023
amended the second schedule to state the exportation of taxable services as a zero
rated supply effective from 1st July 2023.
The VAT-registered businesses in Kenya that are in the service industry welcomed this change with open arms as it is good, for business. As per the VAT Act of 2013, section 34, the forms of registration for VAT
can be summarized as the normal registration, intending trader registration, voluntary
registration, enforced registration, and simplified registration framework due to digital
The normal registration applies to a person who has made taxable supplies
or expects to make taxable supplies, the value of which is five million shillings or
more in any period of twelve months. Once a person is VAT registered they are
expected to charge VAT on all their taxable supplies and remit the taxes collected on
the prescribed form by the 20th of the following month. The supplies can either be under
the standard rate of 16%, exempt, or zero-rated.
A zero-rated supply is a taxable supply on which VAT is levied at 0%. The main advantage of this is that the supplier is able to claim input tax that is the VAT that he/she was charged when buying
taxable purchases for business purposes hence there is no need to pass the cost to
the consumer to make the intended profit margins. This incentive has enabled service
businesses to be competitive in the global markets.
The VAT-registered taxpayers can contact their ETR machine suppliers to configure
their ETR machines so that they are able to generate zero-rated ETR receipts. These
zero-rated sales should be included in the monthly VAT returns. The good news is that the current businesses that are registering for VAT do not need to purchase the ETR machines since there is the option of eTIMS.
In a bid to enable ease of doing business in Kenya, the zero-rating of goods and
services is a welcome move from the government as it alleviates costs from the
citizens and promotes growth in specific sectors.