For a long time, majority of taxpayers would automatically offset income tax overpayments against their tax liabilities. This was largely informed by the fact that Kenya operates a self-assessment regime and one’s tax affairs are believed to be reasonably in order unless successfully queried by the Kenya Revenue Authority (‘KRA’). Therefore, if one has an overpayment, they are eligible to offset against tax liabilities falling due. Unfortunately, this practice was frozen after KRA asserted that a refund of overpaid tax should be lodged and validated before it can be utilized.
Arguably, the position held by KRA was informed by KRA’s interpretation of Section 47 of the Tax Procedures Act (‘TPA’). The Tax Appeals Tribunal (‘TAT’) solidified this position vide a recent judgement involving one of the banks in Kenya. This decision has already been appealed at the High Court.
On the other hand, the KRA has intensified its efforts to ensure that no overpayment is utilized prior to approval by the Commissioner. Some of the efforts include configuration of iTax to ensure that there is no slot to key in tax overpayment brought forward from previous years of income.
Without going to the merits of the efforts deployed by KRA since this may be considered pre-judicial, it would be paramount to device ways of ensuring that income tax refunds are processed and approved timeously to cushion businesses. To achieve this, all stakeholders including the KRA, National Treasury and taxpayers need to play their rightful roles.