The Kenya Revenue Authority (KRA) has highlighted key VAT changes introduced under the Finance Act 2026, including a longer waiting period for businesses seeking refunds on unpaid debts.According to KRA, the period after which a business can apply for a VAT refund on a qualifying bad debt has increased from two years to three years.The change applies where a business has already accounted for VAT on a taxable supply, but the customer has failed to make payment, meaning affected businesses will now wait an additional year before seeking the refund.KRA has advised businesses to maintain proper records, including invoices, evidence of efforts made to recover outstanding debts, and other documents that may support their refund applications.The tax authority has also clarified that VAT should only be charged where the underlying supply is taxable, meaning businesses should not add VAT to invoices simply because they are registered for VAT.KRA further highlighted changes affecting businesses whose supplies become exempt. Where a business has already deducted input VAT on unsold stock before the supplies become exempt, it will be required to account for the relevant input tax in the return for the period when the change takes effect.The taxman also highlighted an increase in the VAT-free allowance for qualifying goods brought into Kenya by returning passengers, which has risen from Ksh38,850 to Ksh259,000, subject to applicable customs rules and eligibility requirements.Digital payment service providers will also be affected, with KRA noting that fees and commissions charged for specified services, including payment processing, settlement, merchant acquiring, payment gateways and aggregation through digital platforms, are subject to VAT at the standard rate.For businesses involved in outsourcing, employee-related costs incurred by a supplier, including salaries, wages and statutory deductions, have been excluded when determining the taxable value of qualifying outsourcing services.The Finance Act also clarifies the VAT treatment of finance charges under hire-purchase arrangements, with qualifying charges excluded from the taxable value of goods where the supplier is licensed under the Hire Purchase Act.Tour operators have also received greater clarity on VAT treatment, with the Act defining qualifying tour operators and "in-house supplies" in relation to the VAT exemption available to eligible tourism businesses.KRA has urged businesses to review their invoices, contracts, classifications and supporting records to ensure they apply the correct VAT treatment under the new law, particularly as the Finance Act 2026 introduces different requirements across sectors and types of transactions.
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