Withholding VAT was introduced by the VAT Act, 2013. It allowed the Kenya Revenue Authority (KRA) to appoint certain suppliers as Withholding VAT agents for purposes of collecting and remitting VAT in advance from suppliers of taxable supplies. This provision was however deleted by the Tax Procedures Act, 2015, effective 19th January, 2016. Despite this deletion, KRA continued to appoint Withholding VAT agents causing concern as to which provision of the law they relied on.

The Government in an effort to correct this through the Finance Act, 2015, re-introduced Withholding VAT provisions by backdating its effective date to 19th January, 2016. This would mean that any person, appointed as a Withholding VAT agent, who failed to withhold VAT on any transaction for the period between 19th January, 2016 and 8th June, 2016 would be subject to a fine not exceeding KES 100,000 (USD 1000)  or imprisonment for a term not exceeding six months, or both, as penalties for non-compliance.

However, through Legal Notice No. 117 of 2016, the government has offered reprieve to Withholding VAT agents who did not withhold VAT on taxable supplies after deletion of the relevant provision; they will not be subject to any penalties for non-compliance.

Going forward, following its re-introduction, the Withholding VAT agents will be required to remit 6% of the VAT payable to KRA to avoid the ramifications for non-compliance.