Kenya Revenue Authority (KRA) says outstanding tax refunds have hit Sh109 billion, hitting businesses' cash flow.
Tax refund claims rose by Sh3.2 billion in the year to June 2021, up from Sh106.7 billion the previous year, triggering a red flag from Auditor General Nancy Gathungu over the pile-up.
Kenya has faced the twin problem of mounting unpaid bills for supplies and delayed payment of tax refunds to companies.
“Management has indicated that various measures including re-organisation and additional staffing of the refunded unit, timely resolution of system challenges, legislative changes and seeking enhanced funding from the National Treasury for payment of approved claims have been put in place to hasten the processing of refunds,” said, the auditor-general.
“However, should the authority fail to get enough funding from the National Treasury, the refund claims will keep on escalating as indicated.”
The taxman 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.
Delays in complying with the two-year period had 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 KRA 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 authority early last year disclosed that it had received over 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.
KRA says claims are supposed to be paid within three months of the applications.
Experts reckon that the changes will ease the demands on taxpayers in settling unpaid duty amid the economic fallout of the coronavirus pandemic.
The law change was meant 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.
