The Kenya Revenue Authority (KRA) has dramatically reduced the processing time for Value Added Tax (VAT) refunds. As of June 2024, businesses in Kenya can expect their VAT refunds to be processed in just 41 days, a substantial improvement from the 102-day waiting period in the 2020/21 financial year.
This development comes as a welcome relief to companies dealing in zero-rated goods and services, who have long struggled with lengthy wait times for their 16 percent VAT refunds. The accelerated process is expected to have far-reaching effects on Kenya’s business landscape, freeing up capital and allowing companies to reinvest more quickly, thereby stimulating economic growth.
The KRA attributes this remarkable improvement to several key initiatives. The authority has developed internal Service Level Agreements (SLAs) within the refund process chain and implemented a system of daily reports to identify and address aging cases. These measures have significantly streamlined the refund process, ensuring compliance with legal requirements for processing claims within stipulated timeframes.
Furthermore, the KRA has leveraged technology to enhance efficiency. The authority has integrated its iTax and Integrated Customs Management System (iCMS) for real-time confirmation of exports, which are a primary driver of refund claims. Additionally, the introduction of the Electronic Tax Invoicing Management System (eTIMS) has enabled real-time processing of refunds, with instant data relay accelerating procedures and improving cash flow for businesses.
This push for efficiency aligns with the broader economic strategy outlined in Kenya’s National Tax Policy, which emphasizes the importance of timely tax refund processing. The government’s commitment to this initiative is further evidenced by its Strategy on Verification and Clearance of Pending Bills. As of October 31, 2023, the KRA had verified tax refund claims amounting to Sh.16.3 billion, comprising Sh.2.8 billion in income tax and Sh.13.6 billion in VAT.
The government has also put in place additional measures to sustain this improvement. These include ensuring optimal allocation for settlement of refunds by The National Treasury and establishing Regional Audit Centres for timely tax refund audits. As of October 31, 2023, there were approved unpaid VAT claims worth Sh 3.6 billion, of which Sh8.6 billion were eligible for offset against tax liabilities on January 1, 2024, in compliance with new legislation.
Economists anticipate that these improvements in the VAT refund process will have a positive ripple effect throughout the Kenyan economy. The faster processing times are expected to lead to increased investment, job creation, and overall economic growth. This, in turn, could position Kenya as an increasingly attractive destination for both local and foreign investment.