By James Anyanzwa
Kenyans owed billions of shillings in unpaid Value Added Tax refunds will have to wait longer before they are paid.
This comes as the State considers fresh options of dealing with the outstanding debt that is estimated at Sh30 billion.
The Kenya Revenue Authority (KRA) now says it is considering a proposal to convert the VAT arrears into a debt instrument such as a bond that can earn interest and trade in the market.
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KRA Commissioner General John Njiraini yesterday said if approved, the proposed securitisation of the VAT refunds could prove a feasible option of addressing the persistent problem of unpaid VAT refunds.
“We need a framework for this. We need a debt instrument such as a bond that can earn you interest and which you can trade in the market. We are ready for that. We are waiting for the proposal to be approved,” said Njiraini.
“Going forward we will not expect generation of VAT refunds at unsustainable level. We are very serious to reduce the backlog of VAT refunds,” he added.
Njiraini was speaking during the official opening of a forum on ‘Ease of Doing Business Reforms’ in Nairobi yesterday. He said KRA has constituted a task force to oversee the processing of the VAT refund claims that have become a nightmare to manufacturers and the business community.
“We have formed a taskforce chaired by myself to oversee the processing of these refunds,” he said.
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But tax experts immediately questioned the viability of the proposed bond and whether there would indeed be a ready market for the debt instrument.
“It is very important for them to resolve the issue of VAT refunds but we need to understand the details on how this is going to work. To my mind there is no doubt that no one is going to buy a bond of that nature,” said Nikhil Hira, Head of Tax Practice at Deloitte and Touche East Africa. “The question whether we are going to have a market for that bond for me to get my cash. The quicker solution is to offset the unpaid VAT refunds against other taxes.”
The development, however, seems to have gone down well with manufacturers who have constantly urged the Government to declare unpaid VAT refunds a national disaster and consider issuing a special bond to pay up the multibillion shillings debt.
“We are aware of this idea only that it has not been announced but most of our members whom we have spoken to are ok with it. The idea has been received well,” said Betty Maina, Chief Executive Officer, Kenya Association of Manufacturers (KAM). The National Treasury recently announced that it had crafted a Bill to fast-rack settlement of unpaid VAT refunds.
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Justus Nyamunga, director at the Economic Affairs Department at the National Treasury said the Tax Procedure Bill, which will be introduced this year, would also spell out the penalties for delayed payment of VAT refunds.
Mr Nyamunga told the parliamentary Budget and Appropriation committee in March that the Bill would streamline operations of VAT refund system.
“The backlog of the VAT refunds was occasioned by the complexity of the VAT law. We are now working on a Tax Procedure Bill which will look into issues such as how long it will take to pay and the consequences of the delayed payment,” he said.