The Kenya Revenue Authority (KRA) confirmed that the Finance Act 2026 lengthens the period for claiming a VAT refund on a qualifying bad debt from two years to three years.

The rule applies when a business has already accounted for VAT on a taxable supply but the customer fails to pay, meaning firms must now wait an additional year before filing a refund claim.

Record‑keeping requirements for refund claims

KRA advised businesses to keep detailed records, including invoices, proof of debt recovery attempts and any other supporting documents, to substantiate refund applications under the new timeline.

Other VAT adjustments in the Finance Act

The Act also clarifies that VAT should only be charged on taxable supplies, and it introduces new rules for businesses whose supplies become exempt, requiring them to account for previously deducted input VAT on unsold stock.

Additional sector‑specific changes include a higher VAT‑free allowance for returning passengers, new VAT applicability to digital payment service fees, and revised treatment of outsourcing and hire‑purchase finance charges.

What businesses should do now

KRA urged firms to review invoices, contracts and classifications to ensure compliance with the revised VAT rules, and to update internal processes for tracking outstanding debts in line with the three‑year refund window.