Section 17

Credit for input tax against output tax 

(1) Subject to the provisions of this section Act* and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person, in a return for the period** subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies. (Finance Act 2021- wef-01July2021*)   (Finance Act 2022-wef-01-July-2022**)

(2) If, at the time when a deduction for input tax would otherwise be allowable under subsection (1), 

• (a) the person does not hold the documentation referred to in subsection (3), or and (Finance Act 2020- wef-30June2020)    (Finance Act 2023 wef 1st-July-2023 s33) 

• (b) the registered supplier has not declared the sales invoice in a return, (Finance Act 2020- wef-30June2020)
• the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation:

Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.

(3) The documentation for the purposes of subsection (2) shall be -

• (a) an original tax invoice issued for the supply or a certified copy; 
• (b) a customs entry duly certified by the proper officer and a receipt for the payment of tax; 
• (c) a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction; 
• (d) a credit note in the case of input tax deducted under section 16(2); or 
• (e) a debit note in the case of input tax deducted under section 16(5). 
• (f*) in the case of a participant in the Open Tender System for the importation of petroleum products that have been cleared through a nonbonded facility, the custom entry showing the name and PIN of the winner of the tender and the name of the other oil marketing company participating in the tender: 
• Provided that the input tax that may have been incurred by an oil marketing company participating in the Open Tender System before the coming into force of this provision shall be claimed within twelve months after this provision comes into force. (Finance Act 2022-wef-01-July-2022*)

(4) A registered person shall not deduct input tax under this Act if the tax relates to the acquisition leasing or hiring* of-  (Finance Act 2021- wef-01July2021*)

• (a) passenger cars or mini buses, and the repair and maintenance thereof including spare parts,  
• unless the passenger cars or mini buses are acquired by the registered person exclusively for the purpose of making a taxable supply of that automobile in the ordinary course of a continuous and regular business of selling or dealing in or hiring of passenger cars or mini buses; or 
• (b) entertainment, restaurant and accommodation services unless—
• (i) the services are provided in the ordinary course of the business carried on by the person to provide the services and the services are not supplied to an associate or employee; or
• (ii) the services are provided while the recipient is away from home for the purposes of the business of the recipient or the recipient’s employer.

Provided that no tax shall be charged on the supply where no input tax deduction was allowed on that supply under this subsection:

(5) Where the amount of input tax that may be deducted by a registered person under subsection (1) in respect of a tax period exceeds the amount of output tax due for the period, the amount of the excess shall be carried forward as input tax deductible in the next tax period:

Finance Act, 2015 Effective 12th June 2015 The Statute Law (Miscellaneous Amendments) Act, 2019Effective 23rd July 2019 
Provided that any such excess shall be paid to the registered person by the Commissioner where the Commissioner is satisfied that such excess arises from making zero-rated supplies. 
Provided that any such excess shall be paid to the registered person by the Commissioner where— 
(a) the Commissioner is satisfied that such excess arises from making zero rated supplies; and 
(b) the registered person lodges the claim for the refund of the excess tax within twelve months from the date the tax becomes due and payable. 
Provided that any such excess shall be paid to the registered person by the Commissioner where— 

• (a) such excess arises from making zero rated supplies; or 
• (b) such excess arises from tax withheld by appointed tax withholding agents; and 
• (c) such excess arising out of tax withheld by appointed tax withholding agents may be applied against any tax payable under this Act or any other written law, or is due for refund pursuant to section 47(4) of the Tax Procedures Act, 2015; and 
• (d) the registered person lodges the claim for the refund of the excess tax within twenty-four months from the date the tax becomes due and payable. 
• (e*) such excess arises from input tax under subsection (8):
• Provided further that a registered person who, since the commencement of subsection (8) but before the commencement of this provision, has a credit arising from input tax under subsection (8) may apply for the refund of excess tax within twelve months from the commencement of this provision. (Finance Act 2022-wef-01-July-2022*)

Provided further that, notwithstanding section 17(5)(d), a registered person who, within a period of thirty-six months prior to the commencement of section 17(5)(b) and (c), has a credit arising from withholding tax, may make an application for a refund of the excess tax within twelve months from the commencement date.

• (ea*) in the case of a taxable supply that is zero- rated or exempted, such excess arose on account of permanent credit position in favour of a registered person due to the difference between the rate applicable on the 1st July, 2022 and a lower rate of tax and that such credit position existed on the date that the taxable supply became zero-rated or exempted: Provided that notwithstanding the provisions of subsection (5), a registered person who incurred such a credit shall apply to the Commissioner for relief within six months after the commencement of this provision. (TLAA 2024 wef 27th December, 2024 S18*)

(6*)Deleted by (TLAA 2024 wef 27th December, 2024 S18*) Subject to this Act, if a taxable supply to, or a taxable import by, a registered person during a tax period relates partly to making taxable supplies and partly for another use, the input tax deductible by the person for acquisitions made during the tax period shall be determined as follows –

(a) full deduction of all the input tax attributable to taxable supplies; 
(b) no deduction of any input tax which is directly attributable to other use; and 
(c) deduction of input tax attributable to both taxable supplies and other uses calculated according to the following formula:   A×B/C, where -
A is the total amount of input tax payable by the person during the tax period on acquisitions that relate partly to making taxable supplies and partly for another use; 
B is the value of all taxable supplies made by the registered person during the period; and 
C is the value of all supplies made by the registered person during the period in Kenya.

(7*) Deleted by (TLAA 2024 wef 27th December, 2024 S18*) If the fraction of the formula in subsection (6) for a tax period –

(a) is more than 0.90, the registered person shall be allowed an input tax credit for all of the input tax comprising component A of the formula; or 
(b) is less than 0.10, the registered person shall not be allowed any input tax credit for the input tax comprising component A of the formula.

(8) Notwithstanding the provisions of this section, a registered person who is a manufacturer may make a deduction for input tax with respect to taxable supplies made to an official aid funded project as may be approved by the Cabinet Secretary in accordance with the First Schedule. (TLAA.2 wef 01-Jan-2021)

(9)* Where a bona fide owner of taxable supplies, who has deducted input tax under subsection (1), is compensated for the loss of the taxable supplies, the compensation shall be treated as a taxable supply and— 

(a) if the compensation includes value added tax, the compensation shall be declared and the value added tax thereon remitted to the Commissioner; or 

(b)if the compensation does not include value added tax, the compensation shall be declared and subjected to value added tax and the tax remitted to the Commissioner.     (Finance Act 2023 wef 1st-July-2023 s33*) 

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