The government has announced a plan to settle Ksh16 billion in tax refunds owed to Kenyans, which were accumulated between January 1, 2023, and October 31, 2023.
According to the 2024 draft policy statement by Treasury Cabinet Secretary Njuguna Ndung'u, the tax refund claims were part of the pending bills the National Government had accrued in the past financial year.
The tax refund claims comprised of Ksh2.75 billion income tax and Ksh13.58 billion related to the Value Added Tax (VAT).
A tax refund occurs when the government reimburses excess taxes paid in error during a certain period. This is categorised into three types: Income Tax Refunds, VAT Refunds and Excise Tax Refunds.
An income tax refund occurs when an individual or a business overpays its income tax for a given year. It can occur due to several factors including excess tax withholding from paychecks or tax deductions that lower the taxable income.
VAT refunds apply to businesses that have paid more VAT on their purchases and expenses than they have collected on their sales.
A business can claim the refunds by submitting proper documentation of their taxable transactions to the tax authority.
Excise tax refunds are when the government reimburses excise taxes previously paid on specific goods or activities. Excise taxes are imposed on goods such as tobacco, alcohol, fuel, and certain luxury items, as well as on activities such as gambling or airline travel.
Aside from tax refunds, the government also accrued Ksh40.8 billion in pension arrears and total legal bills amounting to Ksh150.95 billion.
"The legal arrears are handled by a task force in the Office of the Attorney General and Department of Justice. Notably, legal bills are very fluid and some have since been paid while others have arisen from court and arbitral awards," CS Ndung'u stated.
Overall, the CS noted that the outstanding National Government pending bills amounted to Ksh567.7 billion, comprising Ksh443.8 billion for State Corporations and Semi-Autonomous Government Agencies, and Ksh123.9 billion for Ministries, Departments and Agencies (MDAs).
To avoid incurring more pending bills, CS Ndung'u noted that the government would verify all existing backlogs of overdue payments and assess why they haven't been settled.
"This will help the government to address the issue of pending bills conclusively by identifying necessary system changes to prevent the accumulation of arrears," the CS highlighted.
"Towards this end, the National Treasury with the approval of the Cabinet has established a Pending Bills Verification Committee to carry out a thorough analysis of the stock of National Government pending bills."
The Committee will also be tasked with identifying the causes of pending bills and making recommendations on policy, legal framework and procedures to avoid escalation of the accrued amount.
