What Has Changed?
The Finance Act, 2026 introduced Section 17A of the VAT Act to provide for adjustment of input tax where taxable supplies become exempt while they remain unsold.
When Is an Adjustment Required?
Where:
- A registered person had deducted input tax on taxable supplies; and
- Those supplies subsequently become exempt while still unsold,
the person must account for an amount equal to the input tax relating to the unsold supplies in the VAT return for the period when the supplies became exempt.
How Is the Adjustment Calculated?
The adjustment must be made using the same method that was used when the input tax was originally deducted.
Where the adjustment results in excess input tax, the resulting tax becomes payable to the Commissioner.
What Does This Mean for Businesses?
Businesses need to monitor the VAT status of their supplies and consider the input VAT previously claimed when taxable supplies are reclassified as exempt.
Proper inventory records, VAT schedules and documentation will help businesses identify affected unsold supplies and make the adjustment in the correct VAT return period.
Key Takeaway
Input VAT previously claimed on taxable supplies may need to be adjusted where those supplies become exempt while still unsold.
Source: Finance Act, 2026 — Section 17A of the VAT Act.
TAX HOME KENYA
Simplifying Your Tax Journey.
📱 WhatsApp: +254 725 416 982
📧 taxhomekenya24@outlook.com