Unpaid VAT refunds soar to Sh18 billion

By JAMES ANYANZWA
Government is sitting uneasy on over Sh18 billion in unpaid VAT refunds — leaving businesses in serious cash-flow problems.

And it is emerging that the process of clearing this backlog will take even longer than expected after the Government abolished the Withholding VAT system in July last year where government ministries, departments, and parastatals were used as tax agents.
This comes at a time Kenya Revenue Authority (KRA) is facing legal suits over unpaid VAT refunds.

“The issue of tax refunds should be dealt with as a matter of urgency,” said Nikhil Hira, Head of Tax Practice at the auditing firm Deloitte and Touche.

Tax experts also want the Government to legislate the time frame within which KRA should hold on to tax refunds and to allow the refunds to attract interest if they are not paid within the stipulated timeframe.

Hira said the cash-flow of many businesses and particularly small and medium enterprises (SMEs) are being affected by the authority’s sluggishness in settling tax refunds.

While in Kenya refunds associated with VAT have to be claimed, Tanzania and Uganda levies reverse VAT where firms make VAT entries in their books and simply recover it directly from expected VAT payment.

The withholding VAT system was introduced in 2003 and is credited with bringing many taxpayers into the VAT bracket.

However, after its abolishment, the taxman faces an arduous task of verifying VAT refund claims lodged before its demise.