KRA yet to refund Sh904.9 million to NSSF nearly 30 years later, Auditor General reveals
Auditor General Nancy Gathungu disclosed that the tax arrears stem from income tax payments made in 1996 and 1997, despite NSSF’s exemption from paying income tax as a State-controlled pension fund.
The Kenya Revenue Authority (KRA) has not refunded Sh904.9 million in overpaid taxes to the National Social Security Fund (NSSF) nearly three decades after the money was mistakenly remitted.
Auditor General Nancy Gathungu, in her report covering the financial year ended June 2024, disclosed that the tax arrears stem from income tax payments made in 1996 and 1997, despite NSSF’s exemption from paying income tax as a State-controlled pension fund.
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“The tax refund due from KRA relates to 1996 and 1997 income tax return amounts of Sh493,257,328 and Sh411,646,389 that were inadvertently paid to the KRA after the Fund had become tax exempt,” Gathungu said in the report.
The Fund’s exemption from income tax applies to income generated from various investments such as property, provided that any surplus income is allocated to individual members’ accounts. The Auditor General’s findings show that despite this long-standing exemption, KRA has not released the funds, nor has it paid any interest on the outstanding amount.
“The Fund has not been getting any returns on the long outstanding tax receivable balance of Sh940,336,114,” Gathungu added, faulting NSSF for failing to follow up aggressively on the refund.
Aside from the Sh904.9 million relating to the 1996 and 1997 overpayments, KRA also owes the Fund Sh28.4 million in tax that was paid on interest from bank balances and Sh6.49 million in low-interest tax, pushing the total amount due from the tax agency to Sh940.33 million.
NSSF, under its exemption terms, is required to submit its audited annual report to KRA within nine months after the end of the accounting period to which the audit relates. It must also undertake an asset valuation every three years. These requirements were introduced in 2002. Before then, NSSF enjoyed tax exemption without conditions.
The delayed refunds mirror a broader issue affecting many taxpayers in Kenya. KRA has for years come under criticism for failing to promptly process tax refunds, including overpaid income tax and value-added tax (VAT) claims, often tying up funds that businesses need for operations.
To address this challenge, the government announced in 2020 that KRA would begin paying interest on delayed tax refunds. Under this policy, interest is supposed to accrue at a rate of two per cent if the refund remains unpaid three months after a valid application is filed.
Tax refund claims generally arise when firms pay more tax than is due or when traders absorb VAT on inputs but do not transfer the cost to consumers. However, Gathungu’s report indicates that despite this policy shift, NSSF has not received any interest on the delayed refund dating back nearly 30 years.
The Auditor General’s report now places pressure on both KRA to honour its refund obligations and on NSSF to take a more proactive stance in pursuing the recovery of the funds.
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