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Post Reply: Standard Chartered Bank Kenya Limited v Commissioner of Domestic Taxes: Your Overpaid Taxes Aren't Automatically Yours to Use!

<blockquote><div class="quotetitle">Quote from <a class="profile-link highlight-moderator" href="https://lawguide.co.ke/understanding-law/legal-forum/profile/lawyer/">Lawyer</a> on April 29, 2025, 9:05 pm</div><div id="pl-5152"  class="panel-layout" ><div id="pg-5152-0"  class="panel-grid panel-no-style" ><div id="pgc-5152-0-0"  class="panel-grid-cell"  data-weight="1" ><div id="panel-5152-0-0-0" class="so-panel widget widget_sow-editor panel-first-child panel-last-child" data-index="0" data-style="{&quot;background_image_attachment&quot;:false,&quot;background_display&quot;:&quot;tile&quot;,&quot;background_image_size&quot;:&quot;full&quot;,&quot;background_image_opacity&quot;:&quot;100&quot;,&quot;border_thickness&quot;:&quot;1px&quot;}" ><div
			
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	<p dir="ltr" data-pm-slice="1 3 []">In a significant ruling, the Tax Appeals Tribunal has clarified that taxpayers in Kenya cannot automatically use overpaid taxes or tax credits to offset outstanding tax liabilities without following the formal refund process. This decision underscores the importance of adhering to the procedural requirements outlined in Section 47 of the Tax Procedures Act (TPA) when seeking to utilize overpaid taxes.</p>
<p dir="ltr">The Tribunal has ruled that utilizing overpaid taxes or tax credits to settle tax liabilities constitutes a refund of the overpaid amount. To do so, taxpayers must submit a formal refund application as mandated by Section 47 of the TPA. Failure to comply with this process renders any attempt to offset taxes invalid and may lead to disputes with the Kenya Revenue Authority (KRA).</p>
<p dir="ltr">A taxpayer sought to offset an overpayment of Corporate Income Tax from their 2019 self-assessment against their 2020 tax liability. The KRA issued a demand notice, asserting that tax overpayments could only be recovered through the formal refund process under Section 47 of the TPA. The taxpayer objected, arguing that a formal refund application was not required. However, the Tribunal found the appeal incompetent due to the absence of a valid refund application, emphasizing that compliance with Section 47 is mandatory.</p>
<p dir="ltr">Historically, many taxpayers in Kenya have assumed that overpaid taxes could be automatically applied to offset future tax liabilities under the self-assessment system. This ruling clarifies that such a practice is not permissible without following the formal refund procedure. Non-compliance may result in:</p>
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<p dir="ltr">KRA demand notices for unpaid taxes.</p>
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<p dir="ltr">Inability to appeal refund-related issues without a formal application.</p>
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<p dir="ltr">Potential delays in accessing overpaid funds.</p>
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</ul>
<p dir="ltr">Section 47 of the TPA governs the refund process for overpaid taxes in Kenya. Key provisions include:</p>
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<p dir="ltr">Taxpayers must apply for a refund within five years of the overpayment.</p>
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<p dir="ltr">The KRA must process the application, which may involve an audit, and notify the taxpayer of the decision within 90 days.</p>
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<p dir="ltr">Approved refunds can be offset against outstanding tax liabilities, with any remaining balance refunded within two years.</p>
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<p dir="ltr">Failure to refund the remaining balance within two years attracts interest at 1% per month.</p>
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</ul>
<p dir="ltr">To avoid disputes and ensure compliance, taxpayers should:</p>
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<p dir="ltr"><strong>File a Formal Refund Application</strong>: Submit a refund application in the prescribed format to utilize overpaid taxes or tax credits.</p>
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<p dir="ltr"><strong>Monitor KRA Responses</strong>: Engage with the KRA to ensure timely processing of refund applications and address any issues promptly.</p>
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<p dir="ltr"><strong>Seek Professional Assistance</strong>: Work with tax experts to navigate the refund process and ensure accurate and timely submissions.</p>
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</ol>
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</div></div></div></div></div></blockquote><br>

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