Govt raises VAT registration threshold to sh300m

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In a move aimed at boosting the use of the Electronic Fiscal Receipting and Invoicing Solution (EFRIS), government has lowered the threshold for tax refunds tied to real-time electronic receipting.

EFRIS is a Value Added Tax (VAT) collection tool that became effective on January 1, 2021.

Previously, only buyers who purchased goods from a taxable person and were issued electronic receipts or invoices worth Sh5m within a period of 30 consecutive days were entitled to a refund of five percent of the tax.

However, Clause 7 of the Value Added Tax (Amendment) Bill 2026, currently before Parliament, proposes to reduce this threshold by more than half to sh2m.

In a move, Finance Committee chairperson Amos Kankunda (Rwampara County, NRM), while presenting a committee report on Tuesday, April 21, 2026, contended will drive wider uptake of EFRIS.

“This rule is meant to encourage customers to ask for electronic receipts so that URA can track transactions. However, the sh5 million threshold is too high for many people, so only a few benefit from this incentive. The proposed change lowers the threshold to sh2 million, making it easier for more people to qualify. This change will encourage more people to demand e-receipts, improve tax compliance, and increase transparency in the system,” Kankunda stated.

VAT registration threshold


Relatedly, the Finance Committee in its report also recommended the amendment of Section 7 of the principal Act to increase the annual VAT registration threshold from sh150m currently to sh250m.

This implies that once sales exceed this limit, businesses must charge VAT on goods or services and file tax returns.

“The Ministry informed the Committee that the current threshold has not changed since 2015, despite escalation of prices and growth of business activity. As a result, many small businesses are required to register for VAT, file monthly returns and often hire accountants, which is costly and time consuming,” Kankunda explained.

“In practice, most businesses earning between sh150 million and sh250 million contribute only about 3% of the total VAT collected. Many of these businesses report no VAT payable or claim refunds, which requires URA to carry out time-consuming audits,” he added.

However, Jonathan Odur (Erute South, UPC) objected to this provision, arguing that although the government claims it is revising the threshold upwards, in reality no meaningful adjustment has been made, considering that sh150m a decade ago is equivalent to about sh250m today.

“I have done some simple calculations; because in 2015, sh150 million if you compare the exchange rate or the dollar, then was about sh3,098. Now we have about sh3,700. It means that for every sh1 of that sh150 million, we now multiply it by 600 which brings us to about sh240. So, I want to dismiss that you have actually risen substantially.

“What you have done is just to equate the value of sh150 million in 2015 to the current value, which is sh250 million,” he summed.

However, contributing to the debate, Herbert Tayebwa said, “If we put the threshold to sh500m, we shall have reduced the base. But if we put at sh250m, we shall have widened. After all, it is the final consumer who takes the burden of the tax, not you, the businessman.”

“What we are saying here is that if you put the VAT threshold at sh100 million, there will be so many informal businesses that can’t afford to have records and are difficult to track. But a medium of sh250 million or sh300 million, at least it’s a big business which has records, can easily be tracked and therefore they can easily broaden the tax base. Because the tax is paid by the final consumer,” he added.

Minority report

However, while presenting the minority report, Karim Masaba (Mbale Industrial Division, independent) opposed the arrangement. Instead, he proposed that the threshold be increased to sh500m on the basis that this would reduce administrative and compliance costs, given that VAT is an expensive tax to manage.

Masaba argued that URA enforcement efforts are concentrated on small taxpayers who in many instances, file nil or negligible returns, suggesting that better results would be achieved by focusing on medium and high-yielding businesses.

“Complying with VAT requires specialised accounting, the use of EFRIS and regular filing of taxes. For a small business making about sh200 million a year, administrative costs can eat up the little profit margin, often exceeding the actual tax liability,” Masaba argued.

“If, for instance, you take a business that makes annual sales of sh150 million, that translates to daily sales of about sh410,000, and if we compute a profit margin of 5 or about 10 percent, we are looking at a profit of about Sh40,000 a day without any other business costs,” he illustrated.