VAT and contractual-fee WHT on a building project budget.
Gross payable (with VAT)
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VAT at 16%
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Contractor WHT 3%
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Net to contractor
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Your breakdown
Updates live as you type| Item | Amount |
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Two taxes that move in opposite directions
A building contract carries two separate taxes that often get muddled, and they pull in opposite directions. One sits on top of the contract price and inflates what the client pays. The other is carved out of the contractor's fee and reduces what the contractor banks on the day. The first is value added tax. The second is the withholding tax on contractual fees. This calculator shows both at once so the client knows the cheque to write and the contractor knows the cash to expect, from a single net contract figure.
Get the direction of each tax right and a construction budget stops springing surprises. The figures here, 16 percent for VAT and 3 percent for the contractor withholding, are the rates this calculator applies. Both have been adjusted by successive Finance Acts and KRA notices, so confirm the current rates with the Kenya Revenue Authority before you sign.
VAT is added, and it is a pass-through
Where the contractor is VAT-registered, building and civil works are standard-rated, so VAT at the modelled 16 percent is charged on the contract value and the client pays it on top of the price. Two points trip people up. First, the contractor does not keep that VAT. It is collected on behalf of the KRA and remitted, so it is a pass-through, not income. Second, if the client is itself a VAT-registered business using the building for taxable activity, that input VAT may be recoverable, which softens the real cost. A private homeowner gets no such recovery and bears the full 16 percent.
A 5 million shilling contract, line by line
Take a net contract value of KES 5 million, the figure the tool opens with. The client adds 16 percent VAT, which is KES 800,000, so the gross payable is KES 5.8 million. Separately, the client deducts the 3 percent contractual-fee withholding, KES 150,000, and remits it to the KRA, so the contractor receives KES 4.85 million on settlement of the fee.
| Item | Client pays | Contractor receives |
|---|---|---|
| Net contract value | KES 5,000,000 | KES 5,000,000 |
| VAT at 16 percent | + KES 800,000 | remitted to KRA |
| Contractor WHT at 3 percent | deducted, sent to KRA | less KES 150,000 |
| Net position | KES 5,800,000 out | KES 4,850,000 in |
The chart sets the client outflow against the contractor inflow, with the gap explained by the two taxes flowing to the KRA.
The trap here is reading the KES 150,000 withholding as money the contractor loses. It is not a final tax. For a resident contractor it is an advance credit set against the final income tax on the year's profits, so it is reconciled at filing and any excess is refundable. The VAT, by contrast, never belonged to the contractor at all.
Is the 3 percent withholding the contractor's total tax bill?
No. The 3 percent is an advance against the contractor's final income tax, not a separate or final charge for a resident. When the contractor files, the actual tax on profit is computed and the withholding already suffered is credited; if too much was withheld, the balance is refunded. This calculator shows the cash deducted at the point of payment, not the contractor's eventual profit tax.
Does VAT apply if my contractor is not registered?
A contractor only charges VAT if registered, which is generally required once taxable turnover crosses the registration threshold the KRA sets. A small unregistered builder will not add VAT, so for that job your gross payable would simply be the contract value. The withholding on contractual fees can still apply where you are required to deduct it. Always confirm the contractor's VAT status and the current threshold with the KRA before budgeting.