- As per the Tax Procedures Act, a refund of overpaid tax is to be paid within six (6) months from the date of ascertainment.
- Tax refund ensures equity where tax is deducted in error.
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In Kenya's financial landscape, grasping the intricacies of taxes enforced by the Kenya Revenue Authority is vital.
Whether you are a seasoned taxpayer or new, it is also crucial to understand the tax refunds to identify its benefits, and the steps for a successful refund application.
A tax refund is a reimbursement of excess tax paid or tax paid in error in a given period.
As per the Tax Procedures Act, a refund of overpaid tax is to be paid within six (6) months from the date of ascertainment.
For the purposes of this section, 'tax paid in error' has been defined to mean any tax paid which the commissioner is satisfied ought not to have been paid.
The commissioner, under this section, is required to ascertain and determine an application subject to audit within 120 days failure to which, the application shall be deemed to have been ascertained and approved.
What are the benefits of tax refunds?
Any taxpayer can apply for a refund of the 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 their control.
According to KRA, tax refunds resulting from zero rating of exportation of goods allow exporters to be more competitive in the foreign market.
It ensures equity where tax is deducted in error and also guarantees affordability of certain goods and services deemed as essentials as zero rating of bread, milk, and flour.
What are the types of tax refunds?
Income tax refunds
This refund will arise from tax overpayments by both individual and corporate taxpayers and can be made when there is an over deduction of tax (PAYE) by the employer and an overpayment of installment taxes.
Other circumstances that may lead to a refund are tax incentives on mortgage interest relief, insurance premium relief, annual tax relief, exemption on account of disability, withholding tax, and advance tax credits.
A claim for this refund must be made within five years from the date the tax was paid.
VAT Refunds
These refunds occur as a result of overpayment of taxes as a result of excess credits as a result of zero-rated supplies and excess credits arising out of withholding VAT.
It may also arise from bad debts- after three years but not more than four years from the date of that supply (where a registered person has made a supply and has accounted for and paid tax on that supply and has not received any payment from the person liable to pay the tax)
Excise tax refunds
This refund occurs when a person dealing with excisable goods manufactured in or imported into Kenya has paid excise duty.
The Commissioner shall, on application by the person, refund the excise duty paid if satisfied that the goods have not been consumed or used, or the buyer has returned the goods in accordance with the contract of sale.
It is also refunded if the goods have been damaged or stolen during the voyage or transportation to the country.
If the commissioner is satisfied that the duty paid in respect of spirits or illuminating kerosene that has been used by a licensed or registered manufacturer to manufacture un-excisable goods, the refund is paid, KRA says.
How to apply for a refund
Application for a refund will require you to follow simple steps which involve logging into the KRA’s itax.kra.go.ke portal.
To proceed, enter your KRA PIN and password, then go to the iTax menu and select the tax obligation under the refunds menu.
You will then have to confirm your taxpayer details and click next, then fill in the taxpayer’s bank account details, and click next.
You are then required to select your refund type, the claim reason, the description of the reason for the claim, and the amount and upload supporting documents then submit.
Tips for applying for refunds
When applying for a refund, you must observe the timeframes and ensure that all claims have valid debt status reports before refund processing.
It is important to note that all first-time claimants are subjected to a pre-payment audit.
Tax refund offences
According to the taxman, a fraudulent or false claim of refund will attract a penalty of an amount equal to two times the amount of the claim.