VAT Threshold
VAT Threshold Kenya 2026: The KES 5 Million Mandatory Threshold (Is 8 Million Law?)
· Corrected to reflect the operative KES 5 million threshold
The mandatory VAT registration threshold in Kenya is KES 5 million in annual taxable turnover. That is the law per section 34 of the VAT Act and KRA's own guidance (as confirmed through 2026). Some online articles say the threshold is KES 8 million - that figure comes from a Finance Act 2025 proposal that has not yet been brought into effect. Here is how the rule actually works, whether you should register voluntarily, and how turnover is counted.
Quick Answer
If your annual taxable turnover reaches or exceeds KES 5 million, you must register for VAT within 30 days. Below KES 5 million, registration is not mandatory but you may register voluntarily. The KES 8 million figure is only a Finance Act 2025 proposal - not yet law.
Know the number but not sure it applies to you? Take the 4-question decision guide — covers voluntary cases, B2B pressure, and penalties.
What Is the Current Threshold?
The VAT registration threshold is KES 5 million in taxable turnover in any period of twelve months (VAT Act, s.34). You must apply for registration within 30 days of crossing the threshold. KRA's publicly available VAT guidance - together with PwC's worldwide tax summaries and law firms printing the amended VAT Act - all list 5 million as the number in force.
Confusion creeps in because the Finance Act 2025 proposed raising the threshold to KES 8 million. As at July 2026 the change has not been brought into force. Several SEO/blog articles present the 8 million figure as already effective (some even date it back to "Finance Act 2024" or to 1 September 2024) - those are incorrect. Work from the KES 5 million threshold and check KRA's guidance before acting on anything that says otherwise.
| Annual Turnover | VAT Status | What to Do |
|---|---|---|
| Below KES 5 million | Not mandatory - voluntary available | No obligation to register. May register voluntarily (e.g. to let B2B customers claim input VAT). Pay turnover tax or income tax as applicable. |
| KES 5 million and above | Mandatory registration | Must register within 30 days of crossing. Charge 16% VAT, file monthly returns, use eTIMS. |
Important - the “KES 8 million" claim
The Finance Act 2025 proposed raising the VAT threshold from KES 5 million to KES 8 million. It has not been brought into effect. Register for VAT at KES 5 million to stay compliant; if your accountant or a blog cites 8 million, ask for a Gazette notice showing the effective date.
How Is Turnover Counted?
- Taxable supplies only: Standard-rated (16%) and zero-rated (0%) supplies count; exempt supplies do not.
- Over twelve months: The test is total taxable value in any period of 12 months - watch rolling 12-month totals, not just a single year.
- Excluding VAT: Turnover is measured excluding the VAT itself.
- Projections matter: if it is apparent your supplies will exceed the threshold in the next 12 months on goods or services, you must register even before the actual crossing.
If you make both taxable and exempt supplies, you compare only the taxable supplies against the threshold.
Voluntary Registration (Below KES 5 Million)
You may apply for voluntary registration even under the threshold. The Commissioner has discretion under section 34(3) of the VAT Act. It is typically a good idea if:
- Your customers are VAT-registered businesses - they can claim input VAT on your invoices, making you a preferred (input-claimable) supplier in the chain
- Your input VAT on purchases is significant - if you pay VAT on rent, stock, equipment, or services, you can recover it once registered
- Industry norms favour it - construction, IT services, and professional services sometimes prefer VAT status
It is often less worthwhile when your customers are individuals (B2C - VAT just makes you more expensive) or you buy mostly from non-registered suppliers (little input VAT to reclaim).
What Happens If You Cross KES 5 Million
- Register within 30 days of the month you cross the threshold. Late registration attracts penalties.
- Start charging 16% VAT from the date of registration. If you delay, KRA can charge VAT back to the date you should have registered.
- Onboard eTIMS - mandatory for all VAT-registered businesses, with penalties for late onboarding.
- File monthly returns by the 20th of each month, nil returns included.
We handle the full registration for KES 5,000 - iTax application, and eTIMS onboarding guidance.
Related Resources
- How to Register for VAT in Kenya - Step-by-step registration guide
- Do I Need to Register for VAT? - Decision guide for SMEs
- VAT vs Turnover Tax - Comparison for small businesses
- Small Taxpayer Regime Guide - 8% turnover-inclusive option
- Finance Act 2026 VAT Changes - All VAT changes including threshold updates