Small and Mid-Size B2B Suppliers Face the Highest Tax Risks in Kenya

Let’s assume you’ve secured a supply contract with a local supermarket. You purchase goods with cash from importers in Kamukunji or Eastleigh, where cash transactions dominate and invoicing/eTIMS is virtually nonexistent.

The Informal Option

The Eastleigh/Kamukunji seller offers you goods for KES 90,000 cash (no invoice). A similar product from a VAT-registered trader costs KES 103,240 (VAT inclusive, or KES 89,000 + VAT).

• Short-term “savings”: You appear to save KES 13,240 by buying informally.
• When you sell: You charge KES 116,000 (VAT inclusive = KES 100,000 + KES 16,000 VAT).
• Apparent profit: KES 26,000 (116,000 – 90,000).
• VAT liability: You must remit KES 16,000 to KRA (since you can’t claim input VAT).
• Actual profit: KES 10,000 (26,000 – 16,000).

But the risks don’t end there:

• Without an eTIMS invoice, KRA may disallow the KES 90,000 purchase as a tax-deductible expense.
• At a 30% corporate tax rate, this exposes you to an additional KES 27,000 tax liability.
• Net result? Your “profit” could turn into a KES 17,000 loss (10,000 – 27,000).

The Compliant Option

Buying from a VAT-registered supplier at KES 103,240 (VAT inclusive):

• Selling price: Same KES 116,000 (VAT inclusive).
• Apparent profit: KES 12,760 (116,000 – 103,240).
• VAT due: You owe KES 16,000 but claim KES 14,240 input VAT, so net VAT payable = KES 1,760.
• Actual profit: KES 11,000 (12,760 – 1,760).

Key Takeaways:

1. The informal deal is a false economy—what you “save” upfront, you lose in VAT and tax penalties.
2. Compliant suppliers yield higher real profits (KES 11,000 vs. KES 10,000—or worse, a loss).
3. Non-compliance risks audits, fines, and reputational damage with B2B clients.

The Only Viable Path for B2B Suppliers

For sustainable business:

• Always buy from VAT-registered suppliers/e-tims compliant (even at slightly higher costs).
• Demand eTIMS invoices for all transactions.
• Price strategically to absorb minor cost differences while staying competitive.

Contact us today for Tax Consultations, Business Advisory Services & Tax Disputes Resolution. Book a session here: https://cal.com/hisibati/consulting-session