The VAT special table: Kenya's hidden tax trap crushing businesses

**VAT Special Table is punishing innocent businesses, especially SMEs, by denying them input VAT claims for dealing with suppliers flagged under this system.**

Buried deep within the operations of the Kenya Revenue Authority (KRA) lies a little-known instrument with devastating consequences for businesses across the country—the VAT Special Table. For most ordinary taxpayers, it remains invisible. But for those who’ve fallen into its grip, it represents one of the most unfair and opaque mechanisms ever adopted in Kenya’s tax enforcement system.

On the surface, the VAT Special Table was introduced as a tool to curb fraudulent VAT claims, particularly by identifying suppliers who issue fake invoices or fail to remit output VAT. But in practice, this tool is punishing innocent businesses, especially SMEs, by denying them input VAT claims for dealing with suppliers flagged under this system—even when such businesses have paid VAT in full, received proper invoices, filed returns correctly, and proof of payments for the supplies availed as per Sections 17(2) and Sections 17(3) of the VAT Act.

Consider the case of a Nairobi-based importer of electronics. In mid-2024, the company purchased goods worth Sh8 million, with an input VAT of Sh1.28 million. Several months later, they were slapped with a tax demand from KRA, informing them that their supplier was on the Special Table and therefore the input VAT claim was invalid. Penalties and interest added another Sh420,000 to the bill.

Think of a construction firm in Kisumu sourced roofing materials worth Kshs 5 million, expecting to claim Sh800,000 in input VAT. Everything seemed compliant—the supplier was VAT-registered, had a functioning ETR, and was known in the market. But when the construction firm was filing its monthly VAT return, it was flagged. The supplier, they were told, was on the Special Table. That input VAT claim? Denied. The firm was instead hit with a tax demand and had to endure months of audit, delays in project cash flows, and reputational damage with clients.

This is not made up. It is happening now, quietly, destructively, and systematically.

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Far from a mere administrative tool, this internal compliance mechanism has become a veritable sword of Damocles for businesses, wielding the power to cripple operations and erode trust with a single, often opaque, stroke. My own experience, and the experiences of countless businesses I've witnessed, underscore the urgent need for a more transparent, equitable, and ultimately, fairer application of this vital compliance measure.

What makes this situation especially alarming is the complete lack of transparency and accountability around how the Special Table operates. There is no official public list of suppliers who’ve been flagged. Taxpayers aren’t notified when their suppliers are listed. KRA doesn’t update businesses in real time, meaning one can unknowingly transact with a flagged supplier and only discover it when it’s too late.

It’s even worse when you consider that the VAT Act, 2013 and the Tax Procedures Act, 2015, do not explicitly provide for this mechanism. KRA uses internal circulars to operationalize a tool with far-reaching impact—essentially creating an extralegal regime that overrides the good faith of business contracts. This undermines key principles of taxation: clarity, certainty, and fairness.

Under our current business law, a valid tax invoice issued by a registered taxpayer is presumed legitimate. But with the Special Table, KRA can disallow the claim even when the invoice was genuine and tax was actually paid. This has led to growing concern among tax professionals, legal experts, and business owners that the system is morally and legally questionable.

Penalties are severe. When input VAT is disallowed, the taxpayer is expected to pay the full amount back, along with a 5% penalty and 1% interest compounded monthly. In just a year, this can double the financial exposure. For SMEs already struggling with rising costs, currency fluctuations, and supply chain disruptions, the effects can be fatal.

In addition, businesses placed on the Special Table are frequently restricted from filing their VAT returns. This, in itself, is a significant compliance hurdle. Taxpayers are left in an administrative limbo—unable to meet their filing obligations yet fully exposed to the penalties that accompany non-compliance. While the Kenya Revenue Authority (KRA) states that penalties for non-filing due to Special Table restrictions will be addressed administratively, the process is vague and unsettling. The fact remains that the inability to file generates stress, operational delays, and serious financial implications.

The listing also acts as a trigger for deep and intrusive audits. KRA typically launches comprehensive investigations into a listed company’s VAT history. These audits are resource-intensive and time-consuming, pulling key staff away from their regular duties and adding a layer of bureaucratic strain that most small and medium-sized enterprises are ill-equipped to handle. For some, it halts business altogether.

Even more damaging is the reputational fallout. Most businesses discover they are on the Special Table not through any formal notification, but through the complaints of their clients—clients who can no longer claim VAT on transactions. The damage to trust in these relationships is often irreparable. Many businesses simply cannot afford the stigma of being perceived as non-compliant, especially in sectors like manufacturing, imports, or construction, where trust and transparency are paramount.

There is also the looming threat of legal exposure. Beyond audits and reputational damage, KRA retains the right to pursue penalties, back taxes, and even initiate prosecution if it believes a business has breached VAT regulations. The law is clear, and in some cases, unforgiving.

Which brings us to the matter of penalties. While KRA asserts that penalties associated with Special Table listing are handled “administratively,” this does little to reassure taxpayers. Under normal circumstances, the penalty for late filing of VAT is either Sh10,000 or 5% of the tax due, whichever is higher. In addition, late payment attracts a 5% penalty plus 1% interest per month. Without clear guidelines or timelines on how the administrative handling of such penalties unfolds, businesses are left financially exposed and vulnerable—especially if they believe they’ve been unfairly listed in the first place. Many end up paying these amounts under protest, just to stay afloat.

In a few cases, suspicions arise that a business was listed not due to actual fraud, but possibly due to a competitive vendetta or internal misunderstanding. Without checks and balances, the system is prone to misuse. A disgruntled insider or a malicious competitor could, hypothetically, manipulate the system to trigger a listing and cripple a rival.

The real-world experience of navigating the VAT Special Table is exhausting. It involves months of uncertainty, costly delays, damaged client relationships, and lost revenue. The road to resolution—if it exists at all—is riddled with obstacles, devoid of transparency, and offers no guarantees.

In my opinion, forged from observing numerous cases across sectors and regions, the VAT Special Table in its current form is not fit for purpose. It is a shadow system—powerful yet unaccountable. If KRA seeks to uphold tax compliance and fairness, then the Special Table must be urgently reformed. Its legal basis must be clarified, its processes made public, and its operation subjected to the same transparency and procedural fairness that our Constitution demands of all public bodies. Anything less amounts to administrative overreach—and a betrayal of the good faith on which our tax system depends.

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The broader economic consequence is the erosion of trust in the tax system. Businesses are now afraid to engage new suppliers. Even long-term suppliers are subjected to suspicion, audits, and due diligence that waste valuable time and resources. Procurement teams are becoming more conservative, stifling innovation and competition in the supply chain. This cannot continue unchecked.

We must demand reform. First, the Special Table must be anchored in law, with clear procedures, publication of flagged entities, and a right to appeal. Businesses should not be punished for a supplier’s wrongdoing unless it can be proven that they acted in bad faith. Secondly, real-time tools should be made available, such as a searchable portal or system alert that warns businesses when a supplier is flagged. Finally, Parliament and oversight institutions must investigate how this regime is being used, and whether it is consistent with constitutional protections for fair administrative action.

Kenya’s entrepreneurs should not have to live in fear of secret lists. We need a tax environment that encourages compliance, not punishes it, and supports businesses as partners in development, not suspects under constant surveillance.

The VAT Special Table, in its current form, is not a tool of enforcement. It’s a blunt instrument of injustice—one that threatens the very survival of honest enterprise.

The write is a Global Tax Consultant