Kenya; Investors can now breathe a sigh of relief as the Government moves to finally settle Sh30 billion in Value Added Tax refunds owed to them by the taxman.
This comes following years of delays that had seen the private sector take the issue up with the President and after several deliberations, their prayers seem to have been answered.
The Kenya Revenue Authority (KRA) on Thursday confirmed that Treasury had made a commitment to pay up the refunds in two tranches the last of which will be settled before April 2015.
“President Uhuru Kenyatta gave his assurance at the breakfast round-table to the private sector and the payments are being processed,” explained KRA Commissioner General John Njiraini.
“The money will be paid in two installments with the first installment of Sh10 billion expected by the 10th of January 2015 already being processed and the final installment of Sh20 billion paid up by March,” he said.
Initially, the private sector expected the refunds to be cleared by the end of last month but this was further delayed and the private sector is hopeful that this time the government will honour its pledge. The government has over the years cited lack of capacity to process and audit VAT refunds as a contributing factor to the accumulation of the same.The accumulation over the last two years has been caused largely by lack of resources to pay back the money and lengthy verification procedures before the claims are authorised for payment.
Earlier this year, KRA stated that it will begin honouring refunds by prioritizing honest taxpayers as an incentive for compliance, an initiative that is yet to materialise. The private sector maintains that unpaid refunds interrupt the flow of finances and raise the cost of doing business. This is because businesses have to fund the VAT deductions with money generated from elsewhere as they engage KRA on getting their refund claims processed.
Data from a recent study by accounting firm PKF shows that VAT refunds raise the cost of doing business owing to extra costs of delays, interest rate on working capital, cost of audits and management time required to follow up on refunds with the KRA.
If the Treasury effects the Sh30 billion pay-out, manufacturers will be able to have the claims, some of which date back several years, paid up in full. On 5th of this month during the third presidential roundtable with the members of the private sector in State House, National Treasury Cabinet Secretary Henry Rotich committed to clear a Sh30 billion bill it owes investors in VAT refunds by April next year.
The Kenya Private Sector Alliance (Kepsa), during the meeting said the delay had hit their cash flow affecting operations and expansion plans.
“The VAT refunds are not being done and you know it is a crisis when you are holding about Sh30 billion that investors would be using to grow their companies,” said Kepsa Chief Executive Carole Kariuki.
President Kenyatta ordered the Treasury to clear the entire amount by the next meeting, which is planned for before April next year. The claims resulted from the fact that many goods were previously zero-rated in terms of VAT, allowing manufacturers to claim back related input tax. However, the new VAT Act cut back the refund claims by about half as it drastically reduced the number of goods and services that are zero-rated from nearly 400 to less than 40.
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