The Kenya Revenue Authority (KRA) has proposed removing the Ksh 5 million annual turnover threshold for VAT registration, a move that would require all businesses, regardless of size, to register for VAT.
This proposal, outlined in the Medium-Term Revenue Strategy (MTRS) FY 2024/25–2026/27, was developed by the National Treasury, with implementation assigned to KRA.
The strategy sets out tax policy and administrative reforms to strengthen domestic revenue mobilisation.
Commenting on the proposal, CPA Wachira Joseph stated that scrapping the KSh 5 million threshold is likely to place a heavier burden on businesses while increasing government revenue collection.
What the MTRS Says About the VAT Threshold and Policy Objective
The MTRS proposal suggests removing the VAT registration threshold, signalling a shift from the current threshold-based system to a universal or near-universal VAT framework for businesses supplying taxable goods and services.
According to the MTRS, the proposal aims to broaden the Value Added tax base, which is considered narrow relative to overall economic activity, and to reduce revenue losses linked to exemptions set by thresholds.
“Remove the VAT threshold of KSh 5.0 million to broaden equity, remove tax expenditures, and rationalise zero‑rating while cushioning the vulnerable household,” the proposal read partly.
Also Read: KRA Opens Bids for Electronic Cargo Tracking System
The strategy also seeks to enhance equity in taxation by minimising preferential treatment between small and large businesses offering similar goods and services, while improving Value Added Tax efficiency and overall performance.
Value Added Tax reform is identified in the MTRS as a key measure to help reverse the decline in Kenya’s tax-to-GDP ratio and support medium-term revenue targets.
How the KRA Proposal Could Affect Businesses
According to CPA Wachira, the Kenya Revenue Authority (KRA) proposal to remove the VAT registration threshold would significantly change tax obligations for businesses of all sizes.
Currently, only businesses with an annual turnover above KSh 5 million are required to register for VAT and charge the tax.
Also Read: KRA to Target All Small Businesses in New Mandatory VAT Registration Plan
In his statement, he explained that if the proposal is approved, all businesses, including kiosks, shops, salons, freelancers, and posho mills, would be required to register for VAT, charge 16% on taxable goods and services, issue eTIMS invoices, file monthly returns, and remit the tax to KRA.
CPA Wachira notes that while the move broadens the tax base and increases government revenue, small traders would face higher compliance costs, including record-keeping, accounting services, and digital tools.
He adds that businesses would, for the first time, be able to claim VAT input on purchases, but could also face increased pressure due to the risk of penalties for non-compliance.
Also, some traders may opt for cash-only transactions to avoid the new requirements.
The proposal remains under consultation and will require parliamentary approval before implementation.
