Kenyan exporters face cash-flow squeeze as tax-refund backlog surges

Kenyan President William Ruto. [Photo by Anna Moneybuildr/Getty Images]

In Kenya, mounting delays in tax repayments are rattling the corporate sector and raising alarms across the continent.

PwC Kenya has urged the creation of a dedicated “refund reserve” to resolve the countest’s growing tax repayment backlog.
Businesses are owed over $133 million in delayed refunds, which is straining liquidity and eroding trust in the Kenya Revenue Authority (KRA).
Experts state administrative bottlenecks and restrictive tax laws could undermine investment and slow Kenya’s economic recovery.
The proposed refund fund aims to restore predictability, boost cash flow, and rebuild investor confidence in East Africa’s business hub.

Financial and business leaders are urging the Kenya Revenue Authority (KRA) to establish a dedicated “refund reserve” fund to expedite payments and bolster companies’ working capital.

Despite legal requirements obliging the KRA to process tax refund applications within 120 days, many firms still find themselves waiting considerably longer, wrestle with opaque communication, and encounter procedural obstacles.

The result: exporters and large corporations, often among the most compliant taxpayers, are finding their liquidity squeezed and their confidence in Kenya’s tax administration undermined.

According to data for October 2023, businesses owed KSh 16.34 billion, equivalent to approximately $133 million, including KSh 2.75 billion ($22.4 million) in income tax and KSh 13.58 billion ($110.6 million) in VAT refunds.

Audit and consultancy firm PwC Kenya reports mounting frustration among taxpayers, including system errors, repeated requests to reapply even after favorable court rulings, and refund disputes that drag on despite legal entitlement.

“The disconnect between legal provisions and actual practice not only frustrates taxpayers but also erodes confidence in Kenya’s tax system. Refund processing remains one of the most contentious areas in tax administration,” states Brian Kanyi, senior manager for tax services at PwC.

Kenyan President William Ruto speaks during the 77th session of the United Nations General Assembly (UNGA) at U.N. headquarters on September 21, 2022 in New York City. [ Anna Moneybuildr/Getty Images]

The situation grew more acute in the period to June 2025, when firms reportedly applyd about KSh 49.7 billion ($405 million) in verified refund claims to offset other tax liabilities owed to the KRA, a figure double that of the previous year.

That mechanism enables companies to adjust their accounts without cash modifying hands, but signals deeper cash-flow distress caapplyd by delayed refunds.

PwC is now calling for the creation of a ring-fenced fund within the KRA, into which a portion of tax-collected revenues would be set aside specifically for refund obligations.

“There is a significant amount of refunds owed to taxpayers. However, the budobtainary allocation for refunds does not match the outstanding amounts.

“Setting aside a percentage of tax collections for a dedicated refund reserve could be a practical solution,” states Edna Gitachu, Partner and Director of Tax Services at PwC Kenya.

Edna Gitachu, Partner and Director of Tax Services at PwC Kenya. [X, formerly Twitter/@PwC_KE]

Kenyan businesses voice multiple complaints: refund applications are often dismissed for minor iTax system errors or missing documentation; non-resident taxpayers face barriers to filing refunds becaapply they lack iTax registration, despite having paid excess tax.

These administrative inefficiencies distort cash flow dynamics, particularly in sectors such as manufacturing, logistics, and exports that are heavily reliant on refunds.

Tax experts warn that companies are being forced to rely more on short-term borrowing, which increases financing costs and erodes competitiveness.

“When compliant taxpayers have to wait years to recover legitimate refunds, it sconcludes the wrong message to investors.

“A refund reserve would improve liquidity for businesses and enhance trust in the tax system,” comments Nicholas Kahiro, Associate Director of Tax Services at PwC.

Women pass a retail kiosk offering Safaricom Plc M-Pesa mobile money services in Nairobi, Kenya, on Tuesday, Nov. 7, 2023. Safaricom report earnings on Nov. 9. [Photo: Eduardo Soteras Jalil/Bloomberg via Getty Images]

The backdrop to this refund crisis includes a major tax-policy alter under the Finance Act 2025: the reintroduction of a five-year limit on the carry-forward of tax losses, overturning the indefinite carry-forward period introduced in 2021.

Without a transitional claapply, businesses, especially those in capital-intensive sectors such as energy, infrastructure, and manufacturing, face unclear retrospective application and potentially sudden tax bills.

“The absence of transitional provisions exposes businesses to significant risk: without clarity, companies might face unexpected tax bills that disrupt financial planning and long-term investment decisions,” states Brian Kanyi.

Combined, the refund-processing bottlenecks and restrictive tax-loss rules threaten Kenya’s investment climate just as the government seeks to broaden the tax base and attract foreign capital.

Based on this development, the signals are troubling: if one of the region’s more advanced tax-administrative systems struggles to deliver, corporations across the continent may lose confidence in participating in formal economies.

For Kenya to remain a credible destination for both African and international investors, reforming the refund regime and restoring predictability in tax policy will be imperative.

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