A contract fixes a price today for something delivered tomorrow. If a tax changes in between, someone has to absorb the difference. Who that is depends on what the contract says, and many contracts say nothing. The result is arguments, lost margins and sometimes a refusal to pay. Writing tax into your agreements, and reviewing them when rules change, avoids most of it.

The basic question: does the price include tax?

Every price should say whether it includes or excludes tax. A quotation of KES 100,000 could mean KES 100,000 in total, or KES 100,000 plus VAT. If a VAT rate changes, those two meanings produce very different results. The first absorbs the change into your margin; the second passes it to the customer. State it clearly, and use the VAT calculator to show the amount before tax, the tax and the total. VAT invoices and quotations: what to include lists what to show.

Add a tax change clause

For contracts that run for months or years, include a clause that says what happens if a tax changes. A fair version says that prices exclude taxes and duties, that the customer pays any new or increased tax from the date it applies, and that a reduction is passed on in the same way. Without it, the supplier carries a risk it cannot control.

Rent agreements

Rent is a long contract with tax built in. If a tenant is a company, withholding tax may apply to the rent, and the agreement should say whether the rent is stated before or after the deduction. Otherwise the landlord receives less than expected, or the tenant pays more. Withholding tax on rent for tenants and agents and the withholding tax on rent calculator show the amounts. Landlords should also read monthly rental income tax cut to 7.5 percent to see how a rate change appears in practice, and how to increase rent fairly and legally if a change affects rent.

Service and contractor agreements

Payments to contractors and consultants may attract withholding tax, so the agreement should say whether fees are gross or net of it. The withholding tax calculator shows the effect, and withholding tax in Kenya explained describes who must deduct. Freelancers should read tax for freelancers and content creators in Kenya.

Employment contracts

A salary quoted as gross stays gross when PAYE bands change, but the take-home amount moves. A salary quoted as net puts the burden of any change on the employer. Be clear which is meant; gross pay vs net pay explains the difference. If the law changes statutory deductions, such as those described in NSSF rates change, employers should explain the effect on pay.

Supply and import contracts

Importers face duty, excise and VAT that can change between the order and arrival. Agree who bears them, and consider the delivery terms in Incoterms explained for importers. Suppliers selling to importers should be clear on whether their prices include any duties. See how to calculate import duty on goods.

Reviewing prices when a change comes

When a tax changes, review your price list product by product. Ask whether your prices include the tax, whether the cost you pay has changed, and whether the market will bear a price increase. Work out the new margin before you decide. How to price your products and services in Kenya shows how to build a price from cost and margin, and the product price list with VAT keeps prices and tax in one table.

Communicate early

Customers accept a price change more easily when they understand why and have notice. Tell them the date, the tax involved and the effect. A short message, sent before the date, is better than a surprise on an invoice. Honour quotations that were issued before the date, if your terms say you will, and say so.

Keep records of what was agreed

Keep contracts, quotations and the messages in which changes were agreed. They are your evidence if there is a disagreement. Record each contract and its tax terms in one list so you can find those affected when a rule changes. The what to review in your finances when tax rules change checklist can guide the review.

Ask for advice on big contracts

For large or long contracts, have a lawyer or accountant check the tax clauses before you sign. A few hundred shillings of advice can prevent a loss of thousands. Tax rules will change; contracts that expect it are the ones that last.