Tax relief for businesses as Treasury moves to clear Sh10b VAT backlog

KRA Commissioner General John Njiraini. [PHOTO: STANDARD]

NAIROBI, KENYA: The Government plans to clear the first batch of Value Added Tax (VAT) funds, amounting to Sh10 billion, by January 2015 and complete paying the remainder within the first four months of the year.

This measure is expected to bring relief to thousands of businesses whose operations have been stifled by a clogged VAT refund system at the Kenya Revenue Authority (KRA).

While the National Treasury has previously promised to audit all VAT refund claims from businesses, this has not happened.

The National Treasury made this disclosure during the 11th Taxpayers Award ceremony Tuesday that was also attended by President Uhuru Kenyatta. They announced that the first batch of Sh10 billion in VAT refunds would be cleared by January 2015.

This would happen as soon as a task force formed to review all the refund claims completed its work within two months and made recommendations on what was genuinely payable. The balance will be cleared within the same quarter.

“While the new VAT law has significantly reduced the flow of VAT refunds, the backlog remains unsettled with adverse effects on our tax payers,” said National Treasury Cabinet Secretary Henry Rotich.

This latest move by Treasury to deal with unpaid VAT refunds comes after an earlier announcement by KRA that it was considering converting the outstanding debt, estimated at Sh30 billion, into a debt instrument that could earn interest and trade in the market. KRA Commissioner General John Njiraini said if approved, the proposed securitisation of the VAT refunds could prove a feasible option of addressing the persistent problem of unpaid VAT refunds. It is still unclear whether KRA is still pursuing this option or has dropped it all together.

Excise duty

A commitment and timelines issued on clearing VAT refund backlogs is happening when Treasury is in the final stages of drafting a new Excise Duty Bill that will ease tax collection across the country. The Bill, to be taken to Parliament for discussion and enactment, would simplify how excise duty is applied by consolidating procedures into a single law for VAT, Excise and Income Tax.

“The new Excise Duty law will be more appealing because it has borrowed heavily from international best practices. Tax on tobacco products is one of the areas that will be reviewed under this Bill,” said Rotich.

For a while now, manufacturers have been pushing for the Government to declare unpaid VAT refunds a national disaster and consider issuing a special bond to pay up the debt.