Have you ever filed a tax return and ended up with a negative figure on the tax computation sheet?

If you are in employment, this would be a shocker since the expectation is that all your taxes have already been deducted and remitted by your employer. Well, far from it, a negative figure does not imply that you have a tax due; it means that you have a tax refund.

A tax refund is a reimbursement of excess tax paid or tax paid in error in a given period. It arises when the tax liability is less than the taxes paid. The different types of refunds include: Value Added Tax (VAT), Income tax, Excise duty and Stamp duty.

How does a tax refund arise? For Income Tax, a tax refund can arise in case an employer fails to grant relief to an employee who has an insurance policy or a mortgage on owner occupied property. Insurance policies considered for a tax relief purposes are education and life policies. For an individual with a mortgage to qualify for a tax relief, the mortgage must be from specific financial institutions as listed on the 4th schedule on Income Tax Act.  An income tax refund can also arise where a taxpayer has not been granted a personal relief during the year. Additionally, a tax refund arises where tax deducted at source is in excess of the final liability.

Cases that result in VAT refunds include tax paid in error on any supply, bad debt, excess input tax resulting from zero rated supplies and overpayments or credits resulting from Withholding VAT. In the case of tax paid in error, the claim should be lodged within 12 months from the date the tax was paid. In the case of a bad debt, a tax refund is paid to a VAT registered business person who has accounted and paid tax on a supply but has not received any payment after a period of three years from the date of that supply. Claims for refund for bad debt should be made within five years after which it becomes time barred. However, if the person recovers the tax from the recipient of the supply after receiving the refund, the tax should be paid within 30 days after the recovery date. 

The claim for tax refund is applied online on https://itax.kra.go.ke/KRA-Portal/. For income tax, the documents required include tax a deduction card (Form P9) for claims relating to excess PAYE deductions, insurance policy certificates for claims relating to insurance relief, mortgage certificate from a financial institution for claims relating to interest on mortgage and withholding tax certificates for claims relating to tax deducted at source. 

A refund claim should be made immediately after filing a tax return for the respective year. Upon approval or rejection of a claim, the taxpayer automatically receives an approval order or rejection order respectively via email. 

Does KRA really process refunds? Oh yes, where a claim is fully supported in all aspects, it is processed within 90 days from the time of lodgement.