Global audit and advisory firm PwC Kenya has urged the government to create a dedicated ‘refund reserve’ within the Kenya Revenue Authority (KRA) to resolve the country’s worsening tax repayment delays, which continue to strain businesses’ cash flows and erode investor confidence.
KRA has faced mounting criticism from businesses over prolonged tax refund delays, unclear communication, and policy inconsistencies, despite legal timelines requiring all refund claims to be processed within 120 days. According to PwC, many compliant firms, particularly exporters and large corporations, are struggling with liquidity issues due to the taxman’s sluggish refund procedures.
Official KRA data from October 2023 shows businesses were owed KSh 16.34 billion, including KSh 2.75 billion in income tax refunds and KSh 13.58 billion in VAT refunds. PwC noted that even after successful court rulings, some companies are still being told to reapply for refunds, a practice tax professionals say contradicts Kenyan law.
“The gap between legislation and actual implementation not only frustrates taxpayers but undermines confidence in Kenya’s tax system,” said Brian Kanyi, Senior Manager for Tax Services at PwC, in the firm’s monthly policy update.
Between July 2024 and June 2025, firms used about KSh 49.7 billion in verified refund claims to offset other tax liabilities, double the previous year’s figure, reflecting the scale of cash flow problems facing taxpayers. PwC recommends ring-fencing a portion of Treasury remittances to ensure sufficient funds are always available for refund settlements.
“There is a substantial backlog of unpaid refunds, yet the government’s annual allocation falls short,” explained Edna Gitachu, Partner and Director of Tax Services at PwC Kenya. “Allocating a fixed percentage of tax collections to a refund reserve would restore predictability and fairness.”
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Businesses have also decried administrative hurdles such as iTax system glitches, missing documentation rejections, and arbitrary rejections without explanation. Non-resident taxpayers, meanwhile, struggle to claim refunds because they lack iTax accounts despite overpaying taxes.
Tax experts argue that these inefficiencies force firms, especially manufacturers and exporters—to resort to short-term borrowing, inflating costs and reducing competitiveness.
“When compliant taxpayers wait years for their rightful refunds, it sends a poor signal to investors,” said Nicholas Kahiro, Associate Director of Tax Services at PwC. “A refund reserve would inject liquidity into the market and rebuild trust.”
KRA maintains that budget constraints and fraud prevention are behind the delays. However, PwC insists that administrative fixes, like automated escalation of overdue refunds, authorising agents to process non-resident claims, and penalising delayed processing, could address the problem without compromising integrity.
PwC also urged expansion of the ‘green channel’ fast-track system, currently limited to exporters, to include other compliant taxpayers, saying eligibility should depend on compliance history rather than industry.
The refund issue comes as businesses face a second challenge: the Finance Act 2025, which reintroduced a five-year cap on carrying forward tax losses, reversing the indefinite period introduced in 2021.
Under the new law, firms can only offset losses within five years, but PwC warns that the lack of a transitional clause leaves ambiguity on whether it applies retrospectively to prior losses.
“The absence of clear transition rules risks saddling companies, especially in capital-heavy sectors like energy and infrastructure, with surprise tax bills,” said Kanyi.
PwC analysts caution that unless both refund inefficiencies and the new loss carry-forward limits are addressed, Kenya’s investment climate could deteriorate further, just as the government intensifies its campaign to expand the tax base and attract foreign capital.
