FINANCE ACT,2022

KRA to resume tax refunds in new law

In the past six months, KRA has been offsetting overpaid duties against future tax obligations.

In Summary

•The Finance Act, 2022 has amended the Tax Procedures Act, 2015 by introducing a provision where a person may be allowed to apply for a refund taxes paid in error.

•In the past six months, KRA has been offsetting overpaid duties against future tax obligations.

KRA Commissioner General James Githii Mburu.
KRA Commissioner General James Githii Mburu.
Image: COURTESY

After several months, Kenya Revenue Authority (KRA) will now reinstitute payment of tax refunds, according to the new law.

In the past six months, KRA has been offsetting overpaid duties against future tax obligations instead making reimbursement of excess tax paid.

The Finance Act, 2022, which took effect from July 1, has amended Section 47A of the Tax Procedures Act, 2015 by introducing a provision where a person may be allowed to apply for a refund taxes paid in error.

With the new provision, a person may apply credits relating to tax paid in error against other taxes due to the KRA.

A person may also apply for a refund of tax paid in error in relation to a zero-rated or exempt supply and such provisions were not processed within the specified period due to circumstances beyond the control of the taxpayer.

The time limit for application for the tax refund will be six months for Value Added Tax (VAT) and five years in relation to other taxes.

However, this will be subject for approval by the cabinet secretary.

For the purposes of the section, 'tax paid in error' has been defined to mean any tax paid which the commissioner is satisfied ought not to have been paid.

Cases that attract tax refunds include failure by employers to grant their staff relief education and life insurance policies and home owners with mortgage from banks, insurance companies, building societies and National Housing Corporation.

Persons with Disability holding an exemption certificate and those who have paid Withholding Tax in excess of final liability are also up for refunds.

The changes come amid persistent delays by the taxman to make the refunds.

The law currently gives the taxman up to two years to make the tax refunds from the date of application failure to which the amount due attracts a monthly interest of one per cent.

KRA notes that, where a claim is fully supported in all aspects, it is processed within 90 days from the time of lodgment.

The Tax body has for years delayed making tax refunds to businesses and individuals citing audit delays of the claims made and inadequate cash from the Treasury at the back of perennial revenue shortfalls.

For the first time, KRA hit a revenue collection mark of Sh2 trillion for 2021/22 surpassing the set target by close to Sh150 billion. 

The revenue agency collected Sh2.03 trillion during the financial year under review, against an original target of Sh1.88 trillion and two revised targets of Sh1.91 trillion and Sh1.97 trillion respectively. 

This is a 22.3 per cent improvement in revenue collection compared to the previous financial year when it collected a total of Sh1.66 trillion.