Confused between VAT Withholding and Income Withholding Tax in Kenya? This 2025 guide explains the real difference, updated rates, who deducts what, and how each tax works — with KRA-backed facts.
🧾 What Is Withholding Tax?
Withholding tax (WHT) is when part of a payment is deducted at source and paid to the Kenya Revenue Authority (KRA) on your behalf.
In Kenya, there are two main types:
- Income Withholding Tax – applies to certain incomes like consultancy, rent, dividends, etc.
- VAT Withholding – applies to purchases of taxable goods/services from suppliers by appointed agents.
Let’s break them down clearly.
📘 VAT Withholding (WHT VAT)
✅ What it is:
A 2% deduction on the value of taxable supplies, made by an appointed Withholding VAT Agent when paying a VAT-registered supplier.
✅ How it works (Example):
You invoice a government entity for goods worth Ksh 100,000 + VAT (Ksh 16,000) = Ksh 116,000 total.
They will:
- Pay you Ksh 114,000 (i.e., full amount minus 2%)
- Withhold and remit Ksh 2,000 directly to KRA
- Issue you a Withholding VAT Certificate
✅ You still claim full input VAT (Ksh 16,000) in your VAT return.
✅ Key Points:
- The withheld VAT is 2% of the taxable value
- Applies only to appointed agents (not everyone)
- Does not apply to zero-rated or exempt goods/services
- Must be remitted by the 20th of the following month
📕 Income Withholding Tax (WHT Income)
✅ What it is:
A deduction on certain types of income such as professional fees, rent, dividends, and more — based on predefined rates by KRA.
✅ Examples of WHT Income Rates for Residents:
| Income Type | WHT Rate (Residents) |
|---|---|
| Professional / Consultancy Fees | 5% |
| Management / Training Fees | 5% |
| Contractual Payments | 3% |
| Commissions (e.g. insurance) | 5%–10% |
| Rent (buildings) | 10% |
| Dividends | 10% (0% if receiving company owns ≥12.5%) |
| Royalties | 5% |
| Betting/Gaming Winnings | 20% |
🗂️ Full rate table available in the official KRA guide
✅ How it works (Example):
You earn Ksh 100,000 from a consulting gig.
- The client withholds Ksh 5,000 (5%)
- Pays you Ksh 95,000
- Remits Ksh 5,000 to KRA and issues you a WHT Certificate
✅ You claim this withheld amount when filing your annual return.
🔍 Key Differences Between VAT & Income Withholding
| Feature | VAT Withholding | Income Withholding Tax |
|---|---|---|
| Legal Basis | VAT Act | Income Tax Act |
| Deduction Rate | 2% of taxable value | 3%–30%, depending on income type |
| Who Withholds | Only appointed agents (gov’t, parastatals) | Anyone making a qualifying payment |
| Applies To | Supplies of goods/services | Payments like consultancy, rent, dividends |
| Certificate Required? | Yes – auto-issued on iTax | Yes – issued by payer via iTax |
| Filing Obligation | File VAT Return | File Income Tax Return and attach WHT certificates |
| Refundable? | Credited against VAT payable | Offset against income tax liability |
❗ Common Mistakes to Avoid
| Mistake | Correction |
|---|---|
| Confusing VAT WHT with Income WHT | Learn the triggering transaction type |
| Not filing because “KRA already has the money” | You must still file to claim the credit |
| Assuming any client can withhold VAT | Only appointed agents can do so |
| Forgetting to collect WHT certificates | Always follow up — they’re needed for your return |
💬 FAQs
Q: Can one transaction attract both VAT and Income WHT?
Yes. For example, a consultancy service may have 5% income WHT and 2% VAT WHT (if the payer is an appointed agent).
Q: If my client withholds tax but doesn’t remit, what happens?
You cannot claim the credit unless it is remitted and reflected in your KRA account.
Q: Can I be appointed as a VAT Withholding Agent?
No. Appointment is done by KRA — typically for public institutions and large corporates.
📣 Call to Action
Now that you know the difference between VAT WHT and Income WHT, make sure your books — and tax returns — reflect them correctly.
💬 Need help reconciling withheld tax or filing properly? Ushuru.com can help.
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