Duties of an appointed withholding VAT agent
What a Kenyan business appointed as a withholding VAT agent must withhold, which supplies to leave alone, and the cost of failing to deduct.
By Achekam · · 4 min read · For Running a business businesses in Kenya
Being appointed a withholding VAT agent changes how your business pays its suppliers. Until the appointment, a supplier's invoice with VAT on it was paid in full. Afterwards, part of that VAT is held back from the supplier and paid to KRA instead, and your business becomes answerable for doing it correctly on every qualifying invoice.
It is a responsibility the law takes seriously. KRA sets a specific penalty for agents who fail to deduct, and suppliers will expect you to explain the shortfall in their payments. This article sets out what an agent withholds, on which supplies, how the payment to KRA is recorded, and how to keep suppliers on side.
Who is appointed and how suppliers can check
Withholding VAT agents are authorised by KRA, and KRA provides a way for anyone to confirm an appointment: it says its Tax Agent Checker identifies authorised KRA withholding VAT agents, and its PIN Checker confirms whether a PIN is genuine. Both are listed among KRA's online services, which is also where suppliers can check you.
Expect suppliers to use the checker. A supplier that sees VAT withheld from its payment will reasonably want to know that the customer is genuinely authorised, and the checker gives an independent answer. Make sure the name and PIN on your payment remittances match what the checker shows.
Which supplies to withhold on and which to leave alone
KRA says withholding VAT is charged at 2% of the value of taxable supplies, with effect from 7 November 2019. No VAT is withheld on exempt or zero-rated supplies.
That second rule is where agents most often go wrong. Before withholding, look at what is on the invoice:
| Line on the supplier's invoice | Withhold? |
|---|---|
| Standard-rated goods or services | Yes, at 2% of the value |
| Zero-rated supplies | No |
| Exempt supplies | No |
| A mix of the above | Only on the standard-rated lines |
A worked example in words: an appointed agent receives one supplier invoice with some exempt lines and some cleaning services charged at the standard rate. It withholds 2% of the value of the standard-rated cleaning services only, and pays the supplier the rest. Withholding on the exempt lines would be wrong and would leave the supplier short.
The supplier still files
Withholding does not take the supplier out of VAT. KRA says a supplier whose VAT has been withheld must still file its VAT return and account for the balance. Your withholding does not replace the supplier's return; the supplier accounts for the balance there. The supplier's side of the process is covered in when a customer withholds 2% VAT from your payment.
Generating the payment slip
Withheld VAT is paid to KRA against a payment registration number, a PRN, generated through KRA's systems. KRA's GavaConnect developer platform lists APIs for PRN generation for income tax withholding, VAT withholding and rental withholding, alongside APIs for NIL return filing and turnover tax return filing. Most businesses generate the PRN through KRA's own portal; the APIs matter to firms building their own connections, discussed in KRA's GavaConnect APIs.
On timing, be careful. KRA's VAT page and section 42A of the Tax Procedures Act describe the remittance deadline for withholding VAT differently, so there is no single date to quote. Confirm the position with KRA or your adviser, and remit promptly after each deduction rather than waiting. The timing for withholding income tax, which is a separate obligation, is explained in when to remit withholding tax you deducted.
The ten per cent penalty for not deducting
KRA says failure to deduct withholding VAT attracts a penalty of 10% of the tax involved, and late payment of any withholding tax attracts 5% of the tax due, at the time of writing.
The penalty for not deducting is the bigger risk. An agent that simply pays suppliers in full, perhaps because the accounts team was never told about the appointment, faces 10% of the withholding VAT it should have deducted across every affected invoice. Tell the whole payables team on the day the appointment arrives.
Recording each remittance with its PRN in Achekam
In Achekam, supplier bills are recorded line by line with VAT. A bill with no purchase order waits for approval before it posts, and once posted it can be paid in full or in parts from the bank account you choose. Agree with your accountant how the withheld 2% is shown, so the supplier's account shows the bill as settled and the withheld VAT shows as owed to KRA until it is paid.
Each payment to KRA is recorded with KRA's own reference and receipt, the PRN. Achekam never generates a payment reference itself, refuses Kenya's discontinued paybill 572572, and needs a second person to confirm the payment. For an agent making many small remittances, that confirmation helps catch a payment recorded twice, or against the wrong period.
Explaining the deduction to suppliers
Most supplier frustration comes from surprise. Avoid it:
- Write to regular suppliers when the appointment takes effect, explaining that 2% of the value of taxable supplies will be withheld.
- Show the withholding on every remittance advice, invoice by invoice.
- Do not withhold on zero-rated or exempt lines, and say so where an invoice mixes them.
- Point suppliers to KRA's Tax Agent Checker so they can confirm your appointment.
Before the next payment run, go through the open supplier bills and mark each standard-rated line that the 2% applies to.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
