The value of accumulated tax refunds tapped by companies to settle claims by the Kenya Revenue Authority (KRA) doubled in the financial year ended June 2025, underlining deepening cash flow challenges in a tough economy.
Firms tapped Sh49.67 billion refunds to offset various taxes such as Pay As You Earn (PAYE) on workers’ pay, corporate income tax on profit and value added tax obligations, the KRA reported Thursday. This is a jump of 99.93 percent over Sh24.85 billion the year before.
The law allows taxpayers to use verified claims at KRA to pay off dues during tax compliance periods, avoiding the need for immediate cash outflows from businesses.
However, companies have been fretful of the intense audit processes on their books which come with such requests to the KRA, keeping the majority of them from leveraging on overpaid taxes to settle dues.
“Section 47(2)(b) of the Tax Procedures Act, Cap 469B, stipulates that approved claims not settled within six months shall be offset against existing and future tax liabilities,” KRA Commissioner-General Humphrey Wattanga wrote in a press statement Thursday.
“In line with this provision, adjustment vouchers amounting to Sh49.673 billion were utilised by taxpayers to settle tax obligations across various tax heads in FY [financial year] 2024/25. This reflects a significant increase from Sh24.845 billion utilised during the corresponding period in the previous financial year.”
The law provides instalment adjustment voucher (IAV) for corporate income tax overpayments such as quarterly taxes on profit and advance tax credits, as well as overpayment adjustment voucher (OAV) for withholding tax credits.
KRA data shows that 57.62 percent, or Sh28.62 billion, of the outstanding claims was tapped to offset quarterly corporate income taxes, a fifth or Sh10.42 billion to pay PAYE which is due on 9th of every month and Sh6.51 billion to settle domestic VAT obligations.
Tax consultants say the labourious audit process and increased scrutiny have tended to discourage companies from using the option of excess cash paid to the KRA or taxes remitted in error, save for situations of deep cash flow woes.
“We have not been seeing taxpayers using that provision because if they do, then an audit is unleashed on you. Adjustment vouchers used to be problematic but KRA has of late been lenient and even processes have eased and this is helping utilise those instalment vouchers hence the doubling of that number,” said Philip Muema, managing partner at Andersen Kenya, a tax and business advisory firm.
“But it also points to cash flow challenges on the side of taxpayers because they are offering to use the adjustment vouchers to offset other taxes because they can’t afford to give that money.”
Companies remitted Sh304.833 billion in corporation taxes in the 12-month period ended June 2025, a 9.9 percent rise over the previous year.
The taxes on corporate earnings, largely an indicator of economic performance, were largely driven by ICT, manufacturing, financial, real estate, wholesale and retail sectors, the KRA said.
Tax deductions on the payroll, on the other hand, grew at the slowest pace since the pandemic year, expanding a measly 3.3 percent to Sh560.96 billion.
“The slow growth was attributed to utilisation of adjustment vouchers by taxpayers to offset tax liabilities and policy impacts, which included adjustment of SHIF [Social Health Insurance Fund] and Housing Levy from relief to allowable deductions [effective December 27, 2024] before tax computation,” Mr Wattanga said.
Domestic VAT grew modestly at 4.2 percent to Sh327.34 billion, reflecting depressed consumer purchasing power in an environment of elevated interest rates.
Overall, the KRA collected Sh2.57 trillion in the year ended June, narrowly beating its target by 0.63 percent or Sh16 billion. The collections were 6.81 percent, or Sh164 billion, more than nearly Sh2.41 trillion the year before, partly helped by a partial tax amnesty.
Taxes which go directly to the government's main account, the exchequer, grew 4.5 percent to Sh2.32 trillion, while agency revenue collected on behalf of other State bodies such as stamp duty for the Lands ministry surpassed the target by 19.5 percent to Sh248.28 billion.
“It was a good performance out of KRA in a year where [anti-government] demonstrations have led the economy to where it is, and they deserve credit. It was helped by the amnesty programme,” Mr Muema said.
The collapse of the 2024 Finance Bill, which had sought to raise Sh344.3 billion in new revenue, prompted enforcement units at the KRA to enhance use of various databases to pursue suspected tax cheats.
The databases include bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCAA), which reveals individuals who own assets such as aircraft.
Car registration details are also being used to smoke out individuals who are driving high-end vehicles, but have little to show in terms of taxes remitted. Kenya Power meter registrations are also helping the taxman to identify landlords, some of whom have been slapped with huge tax demands.
