Treasury to settle Sh10 billion bill in VAT refund claims next month

KRA Commissioner General John Njiraini. He says Treasury plans to clear VAT refunds backlog by April. [PHOTO: BEVERLYNE MUSILI/STANDARD]

Investors can now breathe a sigh of relief as the Government moves to finally clear Value Added Tax (VAT) refunds owed to them by the taxman.

This follows years of delays with the private sector taking the issue up with the President. The taxman says the National Treasury will settle VAT refunds worth Sh9 billion once all the claims have been verified. “National Treasury has already formed a committee to verify the claims with the process expected to be completed at the end of this month,” said John Njiraini, KRA Commissioner General.

He spoke yesterday at the end of a consultative meeting with members of the Kenya Private Sector Alliance (KEPSA), to iron out some of the tax related issues affecting the private sector.

The taxman says it is clearing the remainder of the claims by the end of April 2015. Mr Njiraini further adds that it is now able to process 81 per cent of new claims within 90 days, due to the utilisation of the electronic iTax system.

Last year, President Uhuru Kenya directed KRA to clear the VAT refund claims, estimated at about Sh20 billion. Following on this, KRA confirmed that it has already forwarded 740 claims valued at Sh9.8 billion to the National Treasury for payment.

“The key challenges identified in the processing of old claims revolve around the verification of claims; more so those not captured by the Simba system. There is also a high number of tax debts which is hindering payment of tax refunds. We are yet to  determine on whether to offset the debts against the refunds or peg payment on the clearance of tax debt,” said Njiraini.

The Kenya Private Sector Alliance (KEPSA) consultative meeting with KRA also centered on developing an alternative dispute resolution mechanism, electronic clearance of goods at the port of Mombasa (KRA) to address tax related issues facing the private sector.

During the forum, KRA committed to the development of an alternative dispute resolution mechanism; to forestall the growing number of cases filled through the judicial system. Njiraini said the new platform for dispute resolution will be anchored on the Tax Procedures Bill, which is set to be tabled in Parliament.

Poor auditing

“We hope that this internal structure for dispute resolution will enable us resolve up to 80 per cent of disputes out of court. The court process is time consuming and expensive and harms our relationship with our customers,” said Njiraini.

Manufacturers welcomed the decision to clear up a backlog of VAT refunds. “We are definitely elated that the government has finally decided to pay back the refunds that have been pending for over five years but in that time frame, liquidity in the sector was seriously compromised,” said Betty Maina, CEO of the Kenya Association of Manufacturers (KAM).

“This is one of the factors that has affected the growth in the industrial sector and has mired us in debt so manufacturers are wondering how to pay up interest on the loans that they took to keep afloat.”

However, Ms Maina took issue with the auditing by KRA to ensure veracity of the claims. The process locked out, as fraudulent or dishonest, claims amounting to almost Sh10 billion. “It has been a long and lengthy process and the amount of refunds locked out is very huge. While we agree that some of the claims are dishonest, we would not wish to see honest manufacturers lose their money due to poor auditing,” she said.