Taxpayers to face a longer wait for VAT relief

By NANCY MATHENGE

In his 2010 budget speech, Minister for Finance Uhuru Kenyatta promised an overhaul of the existing value added tax (VAT) regime.

He pegged the development to bringing an end to the suffering of taxpayers "under the existing VAT system."

However, despite having eagerly awaited the minister’s budget statement to address this issue and in the hope that he would unveil a new VAT Act, it came as a disappointment. Taxpayers will have to wait a little longer before they can get any relief.

This leaves little doubt that the taxpayer will, for the time being, have no choice but bear with the current legislation, despite its numerous challenges and complexities.

VAT REFUNDS

Some of the key challenges that the taxpayers will have to bear include the ever-increasing backlog of VAT refunds especially in light of the stalled VAT refunds arising from withholding VAT.

Although there has been hue and cry over the years about these refunds, this has, in particular, continued to pose a huge disadvantage to small and medium-sized businesses due to the direct impact it has on their cashflows.

It is obvious that under the existing system, tax compliance is easily compromised as taxpayers feel punished even though they are tax-compliant.

Bearing in mind that the provisions of the current VAT Act are very general, there has been a lot of confusion, which in turn has resulted in inadvertent failure to comply with the VAT legislation.

This confusion has arisen in many different aspects, which remain unclear under the current legislation such as VAT on exportation of services.

The "use and consumption" rules, for example, remain unclear, making it difficult for many businesses to comply as there is no guidance provided to help them in determining where a service is "used or consumed".

Such shortcomings have made it difficult for many businesses to thrive, and have posed a big threat to investors wishing to venture into the Kenyan market. This fiscal year’s budget would have probably been the most opportune moment to unveil the long-awaited revised VAT Act and to ensure that taxpayers and investors work in a conducive environment.

New draft

Taxpayer’s are now left with no choice but to wait, and hope, that the new draft VAT Bill will resolve the issues of the existing system by focusing on better methods to address the shortcomings and thereby bring more taxpayers into the VAT bracket. Watch this space because the new Act should be in place by the end of the year following consultations with stakeholders in August.

The writer is a tax consultant at Deloitte Kenya. The views expressed in this article are the author’s.