Withholding VAT Explained: What Suppliers and Appointed Agents Must Do
Withholding VAT is a way of collecting part of the VAT on a sale early. An agent appointed by KRA keeps back 2 percent of the taxable value when paying a VAT-registered supplier, and sends it to KRA within five working days. The supplier gets a certificate and claims the 2 percent as a credit in its VAT return.
If a customer pays you less than your invoice, or a letter from KRA makes you an agent, this is what you need to know.
Who must deduct it
Only appointed agents. Section 42A of the Tax Procedures Act lets the Commissioner appoint a person to do this. KRA’s guidance refers to an appointment letter, and its agents can include public bodies as well as businesses.
If KRA has not appointed you, you do not deduct it. You pay your supplier’s invoice in full, apart from any withholding income tax that applies, which is a separate tax.
How it works
Example. A VAT-registered supplier invoices an appointed agent. The figures are for illustration only.
| Step | KES |
|---|---|
| Price before VAT | 100,000 |
| VAT at 16% | 16,000 |
| Invoice total | 116,000 |
| Withholding VAT at 2% of 100,000, paid to KRA | 2,000 |
| Paid to the supplier | 114,000 |
Withholding income tax, if it also applies to the payment, comes on top of this and is worked out separately.
If a VAT-registered supplier’s invoice for a taxable supply does not show the VAT, KRA’s guidelines treat the price as including VAT.
Payments it does not apply to
Withholding VAT does not apply to:
- official aid-funded projects
- the taxable value of zero-rated supplies
- registered manufacturers whose investment on 31 December 2024 was at least KES 2 billion, who need an exemption certificate from KRA to show the agent
- suppliers who are not registered for VAT
If you are the supplier
Section 42A(4) is clear that withholding does not remove your own duty to account for VAT. So:
- Declare the full output VAT. In the example, that is KES 16,000, not KES 14,000.
- Deduct your input VAT as normal. Keep the documents the law asks for.
- Claim the 2 percent as a credit. Say your input VAT is KES 5,000. You owe KES 11,000 for the period, and the KES 2,000 certificate brings the payment to KES 9,000.
- Check your certificates. KRA sends them through iTax to your registered email, after the agent has paid. If a customer deducted and you have no certificate, chase it, as this is your evidence of the credit.
If most of your sales go to agents, or your margin is thin, you may build up a credit balance. Under section 17(5) of the VAT Act, an excess carries forward to the next period. An excess that arises from tax withheld by agents can be paid out or set against other tax. The claim must be lodged within 12 months from the date the tax becomes due and payable, so do not leave it sitting for long.
Plan for the cash effect too. The 2 percent leaves your customer’s payment before your return is due, and this can be significant if you are newly VAT registered with large public sector customers.
If you are the agent
- Keep back 2 percent when you pay. Do this on the taxable value shown on the tax invoice, in the supplier’s name and PIN.
- Pay KRA within five working days after the deduction. This is section 42A(4B). You generate a payment slip in iTax and pay through an accredited bank or mobile payment.
- Correct errors through iTax. You can apply to cancel a certificate that went to the wrong person, was issued in error, or is affected by a credit note.
If an agent gets it wrong
Under section 42A(4C), an agent who without reasonable cause fails to withhold the full amount, or fails to pay it over, is liable to a 10 percent penalty on that amount.
Section 39A also lets KRA collect the unpaid tax from the agent as if it were the agent’s own, with penalties and interest. KRA’s December 2024 overview gives interest of 1 percent a month.
One wording point to note: the payment rule says five working days, while the penalty clause refers to the fifth day of the following month. Work to the five working days, which is the shorter limit for most deductions and the one in KRA’s guidelines.
Can an agent’s appointment end?
Yes. KRA can revoke an appointment at any time. Its guidelines let these agents apply in writing to their Tax Service Office:
- an agent that has stopped doing business, with a deregistration certificate
- an agent already withholding and paying, whose sales and purchases have been fully eTIMS compliant for six months in a row
- public bodies and certain institutions listed in the VAT Act, if they are not carrying on business
Until KRA sends a cancellation notice, you keep withholding as before.
Frequently Asked Questions
How much is withholding VAT in Kenya?
Two percent of the taxable value of the supply, which is the price before VAT. On an invoice of KES 100,000 plus KES 16,000 VAT, the agent keeps back KES 2,000 and pays the supplier KES 114,000.
Who deducts withholding VAT?
Only a person KRA has appointed as a withholding VAT agent, under section 42A of the Tax Procedures Act. Other businesses do not deduct it, and they pay their suppliers the full VAT.
Is the 2 percent an extra cost for the supplier?
No. The supplier still declares the full VAT on the sale, and claims the 2 percent as a credit using the withholding certificate. It does affect cash flow, because part of the VAT is paid earlier than the supplier's return date.
Not sure where you stand on VAT?
Our tax experts will check your position and tell you what to do next, so you stay compliant.
General information, not professional advice. Last updated 31 Aug 2026. Tax rules change, so check the current position before acting.