The Finance Bill 2025 has proposed a significant amendment to the Value Added Tax (VAT) Act by halving the period within which taxpayers can lodge VAT refund claims from 24 months to 12 months. This proposed change, contained in Section 32 of the Bill, seeks to amend Section 17(5)(d) of the VAT Act, 2013, which currently allows for a two-year window to claim VAT refunds in cases where input tax exceeds output tax.
Under the current regime, registered persons who have overpaid VAT can apply for a refund from the Kenya Revenue Authority (KRA) within 24 months from when the tax becomes due and payable. The proposed amendment will limit this period to just 12 months, meaning that taxpayers will need to act faster to ensure compliance and avoid forfeiting their claims.
The proposal aligns with broader tax policy objectives aimed at streamlining procedures and improving administrative efficiency. Analysts from Deloitte, who reviewed the Bill, interpret the move as an effort to harmonize VAT refund timelines with provisions in the Tax Procedures Act (TPA). Specifically, Section 47 of the TPA requires the KRA to process refund applications within 90 days and allows for audits if necessary. If KRA fails to issue a refund six months after verification, the overpaid amount is automatically credited against any outstanding or future tax liabilities.
In Kenya, tax refunds are permissible under various circumstances, including overpayments and payments made in error. However, claims related to tax paid in error already have a 12-month deadline. The proposed changes will now bring all VAT-related refund timelines in line with that standard.
While the amendment could enhance compliance and reduce backlog in the refund system, it also places increased responsibility on taxpayers to monitor their transactions and lodge claims in a timely manner. Businesses will need to tighten their internal accounting and tax review processes to adapt to the shorter timeframe.
If enacted, this amendment will underscore the importance of proactive tax management and could further reduce the government’s exposure to delayed refund obligations. Stakeholders are encouraged to review the Bill closely and prepare for the operational adjustments it may necessitate.
