In a surprising move, the Treasury has blocked the Kenya Revenue Authority (KRA) from allowing taxpayers to use overpaid taxes to offset Withholding Tax, Import VAT, and other dues. The decision, citing revenue risks under the East African Community Customs Act, has left many businesses struggling with cash flow despite relief provisions included in the Finance Act 2025.
What Changed in Overpaid Tax Offsetting?
Previously, taxpayers could apply any overpaid taxes to offset other statutory obligations such as Withholding Tax and Import VAT. This system improved business cash flow and reduced refund delays. However, the new directive means that businesses must now wait for KRA refunds — a process that is often lengthy and bureaucratic.
Why Did Treasury Block KRA from Offsetting?
According to Treasury, allowing offsets posed revenue risks under the East African Community Customs Act. The concern is that unrestricted offsets could impact cash inflows to the exchequer, especially given Kenya’s rising budget financing needs. This decision effectively prioritises government revenue collection over taxpayer flexibility.
Impact on Kenyan Businesses
- Cash Flow Strain: SMEs and corporates face delayed refunds while still meeting monthly tax obligations.
- Increased Costs: Businesses may resort to short-term borrowing to plug cash flow gaps.
- Uncertainty: The policy reversal undermines confidence in reforms under the Finance Act 2025.
Protests from Tax Practitioners and Industry Groups
The Institute of Certified Public Accountants of Kenya (ICPAK) and the Kenya Private Sector Alliance (Kepsa) have openly opposed the Treasury’s directive. They argue that it limits taxpayers’ statutory rights and contradicts the government’s commitment to supporting businesses during a challenging economic environment. These groups are lobbying for Treasury to reconsider and align with the Finance Act 2025’s intent of easing compliance.
What Should Businesses Do?
While stakeholders push for policy revision, businesses should:
- Review their tax planning and cash flow strategies with professional advisors.
- Track and reconcile tax overpayments to ensure timely refund claims with KRA.
- Engage with tax experts to explore alternative compliance strategies while staying within the law.
Conclusion
The block on offsetting overpaid taxes against Withholding Tax, Import VAT, and other dues adds new financial pressure on Kenyan businesses. Until Treasury reconsiders, companies must adopt proactive tax and cash flow management strategies.
Need Professional Tax Guidance?
Mwirigi Tax Consultants helps SMEs, startups, NGOs, and corporates navigate tax compliance, refunds, and strategic planning. Contact us today to safeguard your business cash flow.
