One of the biggest accounting mistakes hospitals make is assuming that all healthcare services are automatically exempt from VAT. In reality, this isn’t always the case.

The First Schedule and Second Schedule to Kenya’s Value Added Tax (VAT) Act set out which medical services and goods qualify for VAT exemption or other VAT treatment.

This means your hospital should not assume that every service you provide or every item you purchase is exempt from VAT.

For example, many core healthcare services provided directly to patients are generally VAT exempt, including:

• Medical consultations
• Surgical procedures
• Dental services
• Nursing and patient care
• Laboratory and diagnostic services

However, not every activity carried out by a hospital receives the same VAT treatment. Depending on the nature of the service or supply, some transactions may be subject to VAT.

For example, your hospital may also deal with:

• Pharmacy sales
• Medical reports
• Occupational health services
• Cosmetic procedures
• General medical equipment
• Construction and renovation works
• Utilities and other operating expenses

While certain essential medical supplies—such as vaccines, insulin, blood bags, medical oxygen, and some assistive devices—may qualify for VAT exemption, many other purchases, including hospital equipment, pharmaceutical products, utilities, and construction materials, are generally subject to VAT unless a specific exemption applies.

For this reason, you should categorise each source of income and every major purchase, then confirm its VAT treatment before preparing your VAT returns.

Incorrectly treating a taxable supply as exempt—or vice versa—can result in underpaid taxes, penalties, interest, or unnecessary tax costs.

A qualified accountant or tax advisor can help you review your hospital’s revenue streams and purchases, apply the correct VAT treatment under the VAT Act, and ensure your hospital remains compliant with KRA requirements.