The Kenya Revenue Authority (KRA) will, from next month, block exporters from manually declaring zero-rated goods in a move aimed at tightening scrutiny on value-added tax (VAT) refund claims.
Under the new system, the taxman has linked the Integrated Customs Management System (iCMS) directly to the iTax platform. This means all export data captured through iCMS will be automatically prefilled in VAT returns filed on iTax, leaving no room for manual adjustments by exporters. The iCMS allows submission of export and import documents through a single-window system.
The move will integrate export documentation, invoicing and tax filings into a single platform, marking a shift to fully data-driven tax reporting.
‘Validated export values will be automatically prefilled in the VAT return upon issuance of the relevant export documents by Customs,’ KRA said in a notice to exporters.
Refund scrutiny
The reform targets a long-standing weakness in the VAT system, where goods and services sold to foreign markets – though zero-rated – often generate significant input VAT refund claims.
KRA has previously blamed manual declarations for creating discrepancies between customs records and VAT filings, exposing the authority to inflated or fraudulent claims.
Under the new framework, exporters and their clearing agents will, from May, be required to capture key identifiers at the documentation stage, including the exporter’s PIN and valid invoice numbers generated through the Tax Invoice Management System (TIMS).
TIMS enables VAT-registered businesses to electronically generate, validate and transmit tax invoices in real time.
The tax authority says only export transactions properly linked to these details and validated in iCMS will be recognised in VAT returns.
This means any mismatch – whether in invoice numbers, PIN details or export values – could result in omission from VAT returns, potentially blocking refund claims.
The change applies to exports to foreign markets, the Single Customs Territory, as well as transactions involving Export Processing Zones (EPZs) and Special Economic Zones (SEZs).
System shift
The integration also extends to exports of taxable services, which will now be prefilled in VAT returns based on invoices generated and transmitted through TIMS/eTIMS within the relevant tax period.
This expands KRA’s visibility beyond goods to include service exports, an area that has grown rapidly with the rise of digital and cross-border business models.
The timing of the reform comes against a backdrop of policy tension over VAT refunds.
In August 2025, the National Treasury blocked KRA from implementing provisions of the Finance Act 2025 that would have allowed businesses and individual taxpayers to offset tax liabilities using excess tax credits, citing risks to revenue performance.
The proposed changes had amended Section 47 of the Tax Procedures Act to allow taxpayers to offset overpaid taxes against obligations such as VAT on imported goods from July 1, 2025.
The measures were intended to ease cash flow pressures on businesses, building on reforms introduced in 2021 that allowed overpayments to be applied to outstanding tax liabilities and future obligations, including Withholding Tax, VAT and Pay As You Earn (PAYE).
However, the Treasury pushed back, warning against modifications to iTax that would operationalise the offsets.
‘The National Treasury has clarified to KRA that offsets under Section 47(1)(a) should apply only to taxes borne by the taxpayer and not the tax liabilities of third parties withheld by taxpayers, such as Withholding VAT and Withholding Income Taxes,’ the Treasury said at the time.
It added that withholding taxes are administrative obligations, not liabilities of the withholding agent.