The government still owes Kenyan businesses Sh12 billion in tax refunds amid the ongoing reforms to deal with the refunds headache.
The Kenya Revenue Authority (KRA) said the stock of refunds stood at Sh31.2 billion in April and it is racing to clear it.
“As of April 2023, we had outstanding stock at Sh31.2 billion. We have paid out Sh20.4 billion so far and have a pending balance of about Sh12 billion. Some of the stock of arrears is from 2022”, KRA said in responding to questions regarding the state of tax refund arrears.
Treasury is looking to address the government’s tax refunds headache through a proposal to have persons making delayed refunds claims use the same in offsetting emerging tax liabilities.
The Finance Bill 2023 proposes to amend Section 47 of the Tax Procedures Act of 2015 which currently provides that the Kenya Revenue Authority (KRA) shall repay any overpaid tax within two years from the date of application.
If the proposed change in the Finance Bill 2023 is retained, taxpayers will be allowed to deduct any future tax liabilities from any overpayment which the government has failed to refund for a period of at least six months since the application was filed with KRA.
During his recent visit to the Netherlands, President William Ruto touted this proposed amendment as a game changer in Kenya’s business climate.
“A specific intervention that we have put in this budget is one thing that has always been problematic for our investors and that is Value Added Tax refunds. The decision we have made is that any VAT tax returns that are due and verified, if they are not paid within six months you are free to deduct that amount from other tax liabilities," President Ruto stated while speaking to the business community in Netherlands.
Settlement of Value Added Tax refunds has previously been used as part of the government fiscal stimulus programme at the height of the COVID-19 pandemic.
In October 2020 KRA reported having paid out $100.0 million, about Sh10.9 billion given the exchange rate at the time, in settlement of Value Added Tax refunds following a directive from former President, Uhuru Kenyatta.
“We have seen that in some cases some of the tax refunds have taken a year, sometimes two years and so we have taken the liberty from the Kenya Revenue Authority to pay when they want. We have told KRA to now pay within six months and if they do not pay an individual is free to deduct from their other tax liabilities," President Ruto said.
On average, KRA mobilizes Sh407.2 billion worth of VAT revenue collections every financial year, 53 percent of which is attributable to domestic goods and services.
This makes VAT the second largest source of tax revenue after income tax which incorporates both Corporate Tax and Pay as You Earn.
