Inside government's direct tech-driven VAT refunds plan

Kenyans are set to start receiving Value Added Tax (VAT) refunds directly as the government plans to make deductions at the retail level.

This move seeks to ensure consumers enjoy the actual benefits of tax refunds, which businesses have been faulted for retaining.

Speaking during the NCBA Economic Outlook for 2026 Forum in Nairobi, David Ndii, Chairperson of the Presidential Council of Economic Advisors, said businesses have been claiming VAT refunds but failing to pass the benefits to consumers amid declining disposable incomes.

“The big challenge with VAT is that we want to give citizens a benefit by reinforcing the state. But the way we do it now is either by exemption or zero rating, giving the benefit to the manufacturer with the view that they will pass it on to the consumer,” said Ndii.

If implemented, consumers will file annual tax returns to claim their refunds, which will be wired directly to their individual accounts, a system anchored on technology.

“By the end of the year, you will file a tax return to get a refund. Technology allows us to do it at very low cost. The fact that we haven’t done it before is because in every development experience, you have to be a trailblazer,” he added.

Although the initiative may also help expand the tax base, Ndii explained that one must be a registered taxpayer to qualify for refunds.

“For us to give you a tax credit, you then have to be a taxpayer. You’ll be on the tax net either for paying tax or getting refunds. If you’re below the tax net, you will want to reduce the tax so that you can get a refund from the government,” he noted.

Manufacturers maintain that VAT refunds are critical for business liquidity, but the government insists the benefits have not reached consumers through reduced prices.

The Finance Act 2025/26 has reduced the VAT refund processing period from three years to two.

“For many manufacturers, VAT refunds are not just a matter of convenience; they are crucial to cash flow. Delays in processing refunds mean businesses are left in financial limbo, unable to reinvest in production, pay suppliers on time, or expand operations,” said Alando.

At the same time, the government is shifting from traditional tax collection to automated systems, a transition Ndii says is supported by advanced data analytics that now make it possible to assess income even in the informal sector.

“Already we have a machine learning model that does health premium assessments, another that calculates credit scores for the Hustler Fund, and we are building one to do tax assessments,” he revealed.

Ndii noted that about 17 million Kenyans are in non-payroll employment with an average tax potential of Sh200,000 each, creating a Sh600 billion revenue gap.

Among them, 2.5 million earn amounts comparable to formal sector employees.

“It doesn’t take much to think that if you have three million people on payroll, you have an equivalent three million off payroll earning the same. That’s what our data shows. We are not trying to squeeze money out of everyone at all,” he concluded.