Private firms have received Sh14.2 billion in tax refunds in what is expected to inject much-needed liquidity to oil a cash-strapped economy.
Kenya Private Sector Alliance (Kepsa), a lobby of private business owners, said the arrears were for the financial year 2018/19 and were released in two tranches of Sh11.1 billion and Sh3.1 billion by the Kenya Revenue Authority (KRA).
The latest payments, which was locked from circulation for a long time, follow the intervention of President Uhuru Kenyatta after several petitions by the business community.
Businesses - and particularly manufacturers - have decried the large accumulation of VAT refunds arising from zero-rated supplies.
In his Budget Statement last month, Treasury Cabinet Secretary Henry Rotich concurred with industrialists that accumulation of tax refunds had “impacted negatively on the cash flow and liquidity of manufacturers and the business community at large.”
Mr Rotich said he had since constituted a team to quickly validate the outstanding refunds with a view to clearing them by the end of August. Kepsa said it had several stakeholder engagements before the payments were made and welcomed the move, saying the gesture would have a positive impact on the economy.
“It is estimated that refunds owed to manufacturers alone, amounting to Sh20 billion, would spark an annual growth of Sh50 billion in turnover in the industry – Sh6 billion in VAT collections, Sh1 billion in corporate and income taxes and create 20,000 indirect jobs,” said Kepsa in a statement.
Meanwhile, KRA said it was in the process of simplifying the current VAT refunds processing procedures to enhance faster payment of refunds. The Commissioner of Domestic Tax Department said the simplified (green channel) framework is aimed at fast-tracking the processing of VAT refund claims from the low-risk sectors and reducing the amount of time it takes to process such refunds.
This will reduce the backlog of VAT refund claims. “To achieve this, KRA has already identified categories of low-risk refund sectors and products, which include direct tea and coffee exports or auction centres, horticulture, floriculture, fish products, millers, bakers, dairy products and pharmaceutical companies,” he said.
Other categories of sectors and products which will benefit from the green channel framework include sales to Export Processing Zones, transits, mining firms, transport of passengers by air carriers on international flights and export of sisal.
“County Government institutions dealing with supply of natural water for domestic and industrial use also benefit,” said the Commissioner.
The huge tax refund burden has also been due to the six per cent VAT Withholding Tax, said Rotich. To tackle the issue, Rotich said they will engage the business community to come up with a workable solution.
He proposed lower the VAT Withholding Tax to a level that will eliminate the need for KRA to make refunds.