Kenya Revenue Authority ’s tax refunds to boost ailing tourism sector

Times Tower which houses the KRA offices, in Nairobi's CBD.

Kenya: Kenya Revenue Authority said it is fast tracking payment of tax refunds to tourism industry. This is expected partly help the sector as it struggles to find its footing again. 

“The refunds owed to the industry are not significant… except for Kenya Airways where a huge amount is owed mostly because of the engines that they have imported, the rest are not significant,” said KRA in response to our query. “The payment of all refunds is however being fast tracked.”

National carrier

KRA however declined to disclose how much it owed Kenya Airways, citing taxpayer confidentiality. The national carrier has in the recent past said it is owed about a billion in refunds. KRA’s efforts are despite a May 29 deadline, when the taxman was supposed to have repaid back the tax refunds owed to companies in the industry following a presidential directive.

 On May 23, President Uhuru Kenyatta directed KRA to pay all outstanding tax related refunds owed to the tourism industry players by May 29. This, he said, would improve the liquidity and cash flow in the industry. It was part of a raft of measures announced by the President, which included local firms paying holidays for their staff and recover the money from their taxes.

Conferencing facilities

Other measures included a reduction in park fees and lifting of a ban that had barred government officials from holding conferences in private hotels. Close to two weeks later, KRA is yet to pay out the refunds but said it is processing and would pay the arrears in the coming weeks. It however said the funds owed to the industry players were insignificant but players owed the money note that they have to borrow to bridge cash flow gaps that delayed refunds have created.

Kenya Tourism Federation Chief Executive Agatha Juma in an interview said VAT refunds have not being a major concern for many in the industry and also termed the arrears to the industry as insignificant. Kenya Association of Airline Operators Chief Executive Eutychus Waithaka noted that while many tourism industry players are not owed much in refunds, the case is different for airlines. He said a number of them have been compelled to borrow to loans to bridge cash flow gaps resulting from the delay in getting their money from KRA.

 “Some of the refunds owed to airlines have been paid but the significant ones are still pending,” said Col (rtd) Waithaka in an interview. “VAT refunds have in the past affected our business because essentially that is money that is locked up and a company cannot access it. Our business is capital intensive and when you cannot access such money, it means that you have to borrow a loan and pay when the refunds are made, Waithaka observed.

“There are no guarantees that the money will be paid fast. There is also a limit as to how much can be paid at one go… which makes it complex for a company like KQ that is owed upwards of Sh800 million.”

In March, Kenya Airways Chief Executive Titus Naikuni said the delay by KRA paying out the refunds, the airline is being forced to borrow to finance certain aspects of its operations, especially acquisition of new engines for planes that are set to be delivered in the coming months.

Sleepless nights

The tourism industry is being preferential treatment in the refunds issue but is by no means the only sector whose funds are tied up with KRA. VAT refunds are estimated at a whopping Sh30 billion and growing. It is an amount that is giving KRA, and indeed the entire Treasury, sleepless nights.

And KRA has a made a proposal, which 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.

KRA expects the securitisation of the VAT refunds would be a feasible option of addressing the persistent problem of unpaid VAT refunds.