The National Treasury of Kenya has announced a bold move to address the backlog of Value Added Tax (VAT) refunds, setting aside KES 150 billion in the 2026/2027 budget to clear these arrears. This significant allocation is expected to offer a crucial lifeline to the struggling agricultural and manufacturing sectors, which have been stifled by delayed payments.
For years, businesses across the country have been waiting for refunds from the government, effectively providing an interest-free loan to the state. Farmers, especially in the horticulture and tea industries, have been hit hardest, with some owed over KES 12 billion. This liquidity crunch has forced many to take on expensive loans or scale down operations. Treasury PS Dr. Chris Kiptoo’s announcement marks the first concrete sign that the government acknowledges the severity of the issue and its broader economic impact.
Impact on Ordinary Kenyans
The effects of this backlog have been felt by ordinary Kenyans at the supermarket checkout. With millions tied up in unpaid refunds, businesses such as milk processors and flour millers have faced increased operational costs, which are passed on to consumers in the form of higher prices. By releasing the KES 150 billion, the government is injecting much-needed working capital into the economy, potentially stabilizing prices and protecting jobs.
“We cannot tax our way to prosperity while strangling the goose that lays the golden egg,” remarked a representative of the Kenya Association of Manufacturers (KAM). This move signals a shift in government policy from aggressive tax collection to supporting the growth of businesses.
Link to Finance Bill 2026
This move is linked to the upcoming Finance Bill, which is set to rationalize the zero-rating of certain products. By fixing the VAT refund system, the government hopes to make Kenya’s tax regime more attractive to investors, who have been increasingly turning to more predictable markets like Rwanda.
However, skepticism remains within the private sector, given the government’s history of promises to clear pending bills that often fall through. The real test will be in the disbursement of the funds, which businesses are closely monitoring.
For farmers, especially in regions like Naivasha, this announcement comes as a welcome relief. Many have been waiting for their VAT refunds to repair irrigation systems and pay workers, but had been forced to rely on costly overdrafts. Agriculture, which contributes 33% to Kenya’s GDP, has long been the backbone of the economy, and this move is seen as an urgent attempt to restore financial stability to the sector.
If the KES 150 billion is effectively disbursed, it could serve as a stimulus for the wider economy, offering a much-needed boost without borrowing additional funds from international bodies like the IMF.
