Simplified VAT Refund Claims Framework to Facilitate Faster Payment of Claims

Simplified VAT Refund Claims Framework to Facilitate Faster Payment of Claims

Photographer: Luis Tato/Bloomberg

Taxpayers registered for the Added Tax obligation more often find themselves in a refund position during their transactions.

A refund position, as the phrase suggests, means that the taxman owes a taxpayer some money. A taxpayer could end up in a refund position because of many factors. The key and the most common factor that puts them in this position is excess input tax resulting from zero-rated supplies.

A taxpayer could also end up in a refund position from overpayments or credits resulting from the withholding VAT system as well as taxes paid in error.

VAT paid on bad debts is also another probable instance where a taxpayer could end up in a VAT refund position. The law requires taxpayers in a refund position to apply for the refund within 12 months.

For a while now, processing of VAT refund claims has been taking longer due to the numerous claims lodged by the taxpayers as well as the verification process.

The verification process entails the separation of genuine claims from manipulated claims to ensure that only genuine claims are paid. Consequently, taxpayers have had to wait for the refunds longer than expected.

To facilitate efficiency in VAT tax refunds, the Kenya Revenue Authority has been working to ensure that business continuity is not affected in the process.

For instance, in the just-ended 2018-19 financial year, KRA paid out VAT refund claims to a tune of Sh14.2 billion. Going forward, KRA will be processing and paying out refund claims of even a higher value and at a faster rate, thanks to a raft of measures in the pipeline.

A key measure that will give KRA a substantial advantage is the simplification of the entire refund processing procedure. The simplified approach will be based on a green channel framework whose overall objective is to expedite the payment process of VAT refund claims from the low-risk sectors of the economy.

The new approach will be very instrumental, as it will create efficiency in the verification procedures.

To effectively execute this and live up to the goal of the new approach, KRA has already identified low-risk sectors and products whose refund claim payments shall be processed under the simplified green channel framework.

The sectors and products categorised as low risk include horticulture, floriculture, fish products, millers, bakers, dairy products and pharmaceutical companies. Other sectors and products falling under the low-risk category include sales to Export Processing Zone (EPZ) enterprises, transport, mining companies, transportation of passengers by air carriers on ISO 9001:2015 CERTIFIED PUBLIC international flights and export of sisal.

County government institutions dealing with the supply of natural water for industrial and domestic use will also benefit from the new framework.

Taxpayers registered for VAT will experience efficiency from the revamped VAT refund claims framework as the verification process will now take a shorter time.

The procedure will involve minimal verification processes which guarantee taxpayers expedited payment of their claims. Most importantly as mentioned earlier, the green channel will go a long way in enhancing business cash flow predictability and planning, thus enabling businesses to proceed with their normal operations without any delays.

Apart from revenue mobilisation and collection, KRA’s mandate also extends to trade facilitation.

The simplified VAT refund process is, therefore, a significant trade facilitation tool to ensure that business cash flows are not interrupted. The green channel framework is not only in line with KRA’s mission of building taxpayers’ trust through facilitation but also conforms to the world’s best practice standards.

Such a standard is the requirement of the International Monetary Fund’s (IMF) recommended Tax Administration Assessment Tool (TADAT), which demands the processing of VAT refund claims without undue delay.

Taxpayers set to benefit from the simplified green channel framework shall be required to be tax compliant with no record of fraud-related issues.

The taxpayers shall also be required to adhere to all the conditions governing the simplified framework as well as commit to improve their operations and standards. Apart from removing the bottlenecks affecting the processing of refund claims, the green channel framework will go a long way in enhancing tax compliance levels for Kenya’s sustainable economic sovereignty.


Elizabeth Meyo is the Commissioner for Domestic Taxes Department at the Kenya Revenue Authority (KRA).