KRA slashes VAT refund processing time by 61 days

The Kenya Revenue Authority (KRA) has reduced the time required to process Value Added Tax (VAT) refunds by 59.8 per cent, shortening the timeline from 102 days in the Financial Year 2020-2021 to just 41 days by June 2024.

This significant improvement is part of KRA's ongoing efforts to promote efficiency and improve cash flow for businesses across the country.

The faster processing of VAT refunds comes as a result of several internal reforms, including the establishment of Service Level Agreements (SLAs) within the refund process and the introduction of daily reporting mechanisms aimed at clearing case backlogs.

In a statement on Monday, KRA noted that these measures align with legal requirements to process claims within specific timeframes, ultimately encouraging businesses to comply with tax regulations.

VAT refunds are typically claimed by companies involved in the supply of zero-rated goods and services, which are exempt from the standard 16 per cent VAT.

Timely refunds are essential to maintaining healthy cash flow, and delayed payments can cause financial strain by limiting a company's working capital.

National Tax Policy

KRA's latest initiatives are part of the broader National Tax Policy, which seeks to speed up the disbursement 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.

The introduction of the Finance Act 2023 has also played a crucial role in these efforts.

The Act, specifically Section 47 of the Tax Procedures Act 2015, allows taxpayers to offset refund claims against any outstanding tax debt or future liabilities if approved refunds remain unpaid for more than six months.

By the end of October 2023, KRA had verified refund claims worth Sh16.3 billion, including Sh2.8 billion in income tax and Sh13.6 billion in VAT. Of the unpaid VAT claims, Sh8.6 billion was eligible to be offset against tax liabilities starting January 2024, according to the tax authority.

KRA has taken additional steps to make the refund process more efficient by enhancing its technological systems.

The integration of the iTax and iCMS platforms now allows for real-time export verification, a vital component in processing VAT refunds.

The introduction of the Electronic Tax Invoicing Management System (eTIMS) has further streamlined operations by providing instant data transfer, which is expected to improve business cash flow significantly.

To ensure thorough and timely audits of tax ledgers, KRA has established specialized teams in regional audit centres across the country.

The taxman has also introduced a risk-profiling tool that targets high-risk cases, ensuring smoother refund processing for first-time claimants by avoiding unnecessary delays.

KRA's efforts to accelerate the refund process are expected to ease liquidity constraints for businesses, creating a more favourable environment for trade in Kenya.

With these measures in place, the authority aims to provide businesses with the financial flexibility they need to thrive.