Businesses push for use of VAT refunds to offset tax arrears

Businesses will soon be able to use the tax credits they are owed by the taxman as Value Added Tax (VAT) refunds to offset other tax obligations if a proposal presented to President William Ruto is approved.

The President’s office is also reconsidering the three-month provision in the Finance Act, 2025, regarding the verification and payment of VAT refunds, to revert it to 90 days.

The provision before, as contained in the Tax Procedures Act, indicated that the Kenya Revenue Authority (KRA) had 90 days to verify VAT refunds from businesses for payment.

However, in the Finance Act, 2025, this provision was extended to 120 days, which businesses are lamenting, as it cripples their cash flows.

“That makes it a bit harder for businesses. Maybe we need a different resolution here to see if we can return it to 90 days, but also look at offset across different tax classes,” said the Kenya Private Sector Alliance (Kepsa) Chief Executive, Carole Kariuki, during the Presidential round table with the private sector on Wednesday.

 “There is work in progress. We have been engaging KRA, and they are happy to look at it.”

Businesses also want a revision on the amounts allocated to KRA for tax refunds from Sh2.5 billion a month to Sh5 billion.

This will go in line with a corresponding request to have the amounts capped for refunds for businesses revised upwards from the current Sh30 million. “We have big exporters, some of whom have bigger claims of more than Sh30 million a month,” said Ms Kariuki.

A progress report on issues bedevilling the private sector presented to President Ruto during the engagement notes that delays in VAT refunds impact business cash flow, even as it highlights steps taken earlier to resolve this issue.

“However, there is a need for funds for the same to be adequately funded to facilitate prompt refunds.  It is estimated that outstanding VAT refunds amount to about Sh15 billion,” the report says. It recommends increasing the monthly government allocation of VAT refunds from the current Sh2.5 billion to Sh4 billion.

It also recommends the creation of a revolving fund or issuing VAT refund bonds tradable on the Nairobi Securities Exchange (NSE). President Ruto, who was at the meeting, said his administration is willing to look into the possibility of VAT refunds being used to offset other tax obligations.

“That is something I am willing to consider because I think it helps the industry,” he said.

He said his office will also consult with the ministries of Investments, Trade and Industry, and National Treasury to understand why the VAT refunds repayment period was extended from 90 to 120 days.

The Head of State said on the Sh30 million cap, exemptions could be provided for larger businesses.

“I hear you say let us increase allocation from Sh2.5 billion every month to Sh5 billion. That is another homework we will take it back and look at what it means to us in terms of our other obligations,” he said.