KRA stops tax refunds from January 1 under new law


Times Tower in Nairobi, the headquarters of Kenya Revenue Authority (KRA). PHOTO | DENNIS ONSONGO | NMG

The Kenya Revenue Authority (KRA) will from Friday stop paying tax refunds and instead offset the overpaid duties against future tax obligations.

The changes that come into effect from January 1 are contained in the Finance Act 2021 and come amid persistent delays by the taxman to make the refunds.

The law currently gives the taxman up to two years to make the tax refunds from the date of application failure to which the amount due attracts a monthly interest of one percent.

The KRA has for years delayed making tax refunds to businesses and individuals citing audit delays of the claims made and inadequate cash from the Treasury at the back of perennial revenue shortfalls.

“Once the Commissioner notifies of a decision under subsection (3) and the Commissioner is satisfied that there is an overpayment of tax, the overpaid tax shall be deemed to have been offset against the taxpayer’s future tax liabilities,” reads the changes.

Delays in complying with the two-year period have piled pressure on the taxman given that a breach of the provision attracts penalties.

Cases that attract tax refunds include failure by employers to grant their staff relief education and life insurance policies and where tax deducted at source is more than the final liability.

The is required to give funds for value-added tax (VAT) when duty is erroneously paid on any supply, bad debt, excess input tax on zero-rated supplies and overpayments or credits resulting from withholding VAT.

The KRA early this year disclosed that it had received more than 2,000 applications for withholding VAT refunds but only cleared 1,041 businesses and paid Sh6.6 billion worth of refunds.

The taxman attributed delays in settling claims for the remaining businesses to an ongoing audit of the claims in a bid to weed out fictitious cases.

The taxman says claims are supposed to be paid within three months of the applications.

Experts reckon that the changes will ease the demands on the taxpayers in settling unpaid duty amid the economic fallout of the coronavirus pandemic.

“This amendment seeks to alleviate the interest burden on taxpayers as KRA will first utilise the refund against any outstanding tax and in addition pursue penalties and interest on the outstanding tax,” says audit firm KPMG Kenya.