Kenya Revenue Authority Reduces VAT Refund Processing Time by 2 Months.

Kenya Revenue Authority (KRA) has cut the time it takes to process Value Added Tax (VAT) refunds by 61 days. Previously, businesses had to wait 102 days for refunds to be processed, but this has now been reduced to 41 days. The change is part of KRA’s broader reforms in tax administration aimed at enhancing taxpayer experience and improving compliance within Kenya’s tax framework.

This improvement in efficiency is credited to the establishment of internal Service Level Agreements (SLAs) within the refund process, along with the implementation of daily reporting to clear case backlogs. KRA also effected system integration with its iTax and Integrated Customs Management System(iCMS) systems for real-time confirmation of exports which are the key driver of refunds.

“Various measures have been put in place to enhance refund processing and payments. Apart from ensuring optimal allocation for settlement of refunds,” the taxman said in a statement. “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.”

The reduction is expected to positively impact on businesses, especially those facing liquidity challenges due to delayed refunds. VAT refund have long been a pain point for many enterprises operating in Kenya, with businesses often struggling to maintain healthy cash flow while waiting for the tax refunds they are owed. According to KRA, the new measure is geared towards addressing these challenges by ensuring faster processing and more efficient service delivery.

As of the end of October 2023, the KRA had verified tax refund claims totaling Sh16.3 billion, comprising Sh2.8 billion in income tax and Sh13.6 billion in VAT. VAT refunds are primarily claimed by businesses dealing in zero-rated goods and services, which are exempt from the standard 16 per cent VAT.

As of 31st October 2023, there were approved unpaid VAT claims worth Sh 3.6 billion, out of which Sh8.6 billion were eligible for offset against tax liabilities on 1st January 2024 in compliance with new law.

The development comes against the backdrop of the introduction of the National Tax Policy which provides guidelines for enhancing the timely processing of tax refunds. KRA has set up special teams at regional audit centers to make sure tax audits and ledger reconciliations are done on time.

The authority has also introduced a risk-profiling tool to target high-risk cases, helping to avoid unnecessary delays when processing refunds for first-time claimants. The introduction of the Electronic Tax Invoicing Management System (eTIMS) further saw a real time system for processing refunds as the system’s instant data relay accelerates refund procedures, thereby improving cash flow for businesses.

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