Unga Ltd launched an appeal claim for VAT in the years 2012 and 2013. The commissioner audited the refund claim and informed Unga that its VAT refund claims totaled Kshs. 189,958,332.00, “are all processed and in the Finance Department and unfortunately also informed the Taxpayer that the National Treasury had put a freeze on payment of all refund claims prior to 31st December 2013.
The commissioner withdrew the above communication in a letter dated 27th June 2017, two years and eight months later. The tribunal held that this was holding the taxpayer in suspense and against their legitimate expectation.
The tribunal ruled in favor of the taxpayer arguing that the tax was refundable. The commissioner subsequently filed an appeal with the high court. The court agreed with the tribunal ruling and found the commissioner wrong in withholding the taxpayer’s refund in anticipation of tax liabilities arising.
The law then did not make a provision for the application of tax refunds against future tax liabilities. Finance act 2021 brought in amendments to the Tax procedures act inserting section 47 4 (C) which states “Without prejudice to the provisions of this section, once the Commissioner notifies of a decision under subsection (3) and the Commissioner is satisfied that there is an overpayment of tax, the overpaid tax shall be deemed to have been offset against the taxpayer’s future tax liabilities”.
Following this amendment tax refund can now be used to offset anticipated tax liabilities, making chances of collection a refund from the commissioner extremely rare.
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