VAT Refunds and What is Changing in the Finance Bill 2025?

The Finance Bill 2025 has brought several significant tax proposals to the spotlight, but one that’s causing ripples across the business community is the reduction of the VAT refund claim period. Under the new proposal, the time limit to claim VAT refunds will be reduced to just 12 months.

But what does this really mean for businesses, consumers, and the broader Kenyan economy?

 

What is the Current VAT Refund Framework?

Under the existing VAT Act, businesses can claim Value Added Tax (VAT) refunds on inputs related to zero-rated supplies or when they are in a refund position due to excess input VAT. Currently, businesses have up to five years to lodge a VAT refund claim with the Kenya Revenue Authority (KRA).

This system has allowed businesses more flexibility, especially those with complex accounting processes, long contract cycles, or delayed supplier reconciliations.

 

What’s Changing in the Finance Bill 2025?

The Finance Bill 2025 proposes to reduce the time frame to file VAT refund claims from five years to 12 months. That’s a dramatic cut — and one that could carry serious implications.

 

 Implications for Businesses

Time Pressure

Businesses — especially SMEs and those with limited tax compliance resources — will now be under greater pressure to reconcile accounts and file refund claims within a tighter timeline.

 

Lost Refunds

Any VAT not claimed within the new 12-month window could be forfeited, leading to increased operational costs and cash flow challenges for businesses that are already struggling with high taxes and inflation.

Compliance Burden

This change could increase the administrative burden for tax professionals and companies, as they will need to accelerate their documentation and filing processes or risk losing eligible refunds.

 

What Does This Mean for Consumers?

While the change is more directly tied to businesses, consumers could feel the impact as well. Reduced VAT refund claims for businesses may:

• Lead to higher product or service prices to offset the lost tax benefits.
• Affect supply chain stability, especially for businesses relying on large-scale imports and exports.

 

Is a 12-Month Limit Fair?

This change raises key questions:

• Is a one-year time limit realistic given the administrative and procedural delays often experienced in Kenya?
• Will the KRA be able to process refunds faster now that businesses must claim them earlier?
• Should the government consider a transition period or exceptions for large-scale projects?

 

Why Your Feedback Matters

The Finance Bill 2025 is still under public consultation, and your opinion can make a difference. Whether you're a business owner, accountant, consumer, or tax expert, your voice can help shape the future of VAT policy in Kenya.

Take 2 minutes to fill out our feedback form:
[CLICK HERE]

 

Lastly, the proposed 12-month limit on VAT refund claims could improve tax efficiency — but it might also put an unfair strain on businesses and potentially trickle down to consumers. As Kenya looks to streamline its tax system, it’s critical that such reforms balance efficiency with fairness.

Let us ensure your business doesn’t lose out because of policy changes made without your input.