Kenya Revenue Authority (KRA) has progressively reduced the period it takes to process Value Tax (VAT) refunds by 59.8% from 102 days in the Financial Year 2020/2021 to 41 days as of June 2024.
This substantial improvement has been credited to the development of internal Service Level Agreements (SLAs) in the refund process chain and the preparation of daily reports to root out the ageing of cases. This is in a bid to facilitate compliance with the legal requirement of processing claims within the stipulated time frame.
VAT refunds are mostly claimed by businesses dealing in goods and services, which are zero-rated from the 16 percent VAT.
The development comes against the backdrop of the introduction of the National Tax Policy which provides guidelines for enhancing timely processing of tax refunds. This is considering that unpaid refunds withhold the working capital of the taxpayers thus imposing liquidity constraints on businesses.
According to the Government’s Strategy for Verification and Clearance of Pending bills, KRA had verified tax refund claims amounting to Kshs.16.3 billion comprising of Kshs.2.8 billion income tax and Ksh.13.6 billion in respect of VAT, as of 31st October, 2023.
Various measures have been put in place to enhance refund processing and payments. Apart from ensuring optimal allocation for settlement of refunds by The National Treasury, KRA has also overseen the implementation of the Finance Act 2023 (Tax Procedures Act, 2015 – Section 47) which allows taxpayers to offset refund claims against outstanding tax debt or future tax liabilities where the Commissioner has not paid approved refunds within 6 months.
As of 31st October 2023, there were approved unpaid VAT claims worth Kshs.13.6 billion, out of which Kshs.8.6 billion were eligible for offset against tax liabilities on 1st January 2024 in compliance with the new law.
KRA has also effected system integration with its iTax and iCMS systems for real-time confirmation of exports given that exports are the key driver of refunds. The introduction of the Electronic Tax Invoicing Management System (eTIMS) has also created a real-time system for processing refunds as the system’s instant data relay accelerates refund procedures, thereby improving cash flow for businesses.
KRA has also established dedicated teams at Regional Audit Centres for timely tax refund audits as well as dedicated teams for continuous reconciliation of taxpayer ledgers given that debt validation after claim lodgment causes delays in refund processing. The Authority is also implementing a risk-profiling tool to identify high-risk cases deserving pre-payment audits, rather than auditing all first-time claimants.
Related Content: Contrary To What We Know, KRA Is Supporting The Growth Of SMEs In Kenya
