Companies advocate for employing Value-Added Tax (VAT) refunds to alleviate overdue tax obligations
In a recent engagement, President William Ruto and the Kenya Private Sector Alliance (Kepsa) discussed measures to address the cash flow challenges faced by Kenyan businesses due to delays in Value Added Tax (VAT) refunds.
Kepsa, currently engaged with the Kenya Revenue Authority (KRA) to address the VAT refund delays, has proposed a resolution to extend the repayment period for VAT refunds from 90 days to 120 days as outlined in the Finance Act, 2025. This proposal aims to allow businesses to use their pending VAT refunds to offset other tax obligations, thereby easing the financial strain imposed by the extended repayment period.
During the Presidential roundtable meeting, Kepsa CEO Carole Kariuki suggested either reverting the refund period back to 90 days or introducing offsetting across different tax classes to improve liquidity for businesses. The proposal also includes increasing the monthly refund allocation from the current Sh2.5 billion to Sh5 billion.
President Ruto acknowledged these concerns and indicated his willingness to consider exemptions for companies with claims exceeding the current Sh30 million cap and the possibility of increasing the monthly refund allocation. He also mentioned that the President's office will 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 discussions reflect ongoing government efforts to enhance relations with the private sector by addressing tax reforms and accelerating refund processes. A progress report on issues affecting the private sector, including delays in VAT refunds, was presented to President Ruto during the engagement. The report estimates that outstanding VAT refunds amount to about Sh15 billion.
In addition to the proposed measures, Kepsa and President Ruto are considering other solutions such as creating a revolving fund or issuing VAT refund bonds tradable on the Nairobi Securities Exchange (NSE). President Ruto also mentioned that exemptions could be provided for larger businesses regarding the Sh30 million cap.
The initial provision in the Tax Procedures Act allowed the KRA 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 find detrimental to their cash flows.
As the discussions continue, it is hoped that a resolution will be found to alleviate the financial strain on Kenyan businesses, particularly large exporters with claims exceeding Sh30 million a month for tax refunds. The government's willingness to engage and consider the proposals put forth by Kepsa is a positive step towards fostering a more supportive business environment in Kenya.
[1] Source: Kenya Private Sector Alliance (Kepsa) press release, dated [insert date]
The Kenya Private Sector Alliance (Kepsa) proposed extending the repayment period for VAT refunds from 90 days to 120 days as outlined in the Finance Act, 2025, to allow businesses to use their pending VAT refunds to offset other tax obligations. President Ruto is considering exemptions for companies with claims exceeding the current Sh30 million cap to alleviate the financial strain on Kenyan businesses.
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