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State yet to clear Sh30b VAT backlog

By Dalton Nyabundi | June 23rd 2016

Manufacturers have urged the Government to release Sh30 billion owed to them in Value Added Tax. The Kenya Association of Manufacturers (KAM) says the recent budget speech by Treasury Cabinet Secretary Henry Rotich failed to touch on outstanding VAT claims, obsolete levies and double taxation faced by firms.

The Association’s Western Kenya Chairperson Joyce Opondo told The Standard that the budget failed to meet a number of expectations held by manufacturers, leaving the country as most expensive in the region to produce in. “We were hoping the Government would set aside some money to clear the backlog of claims by manufacturers but the budget did not mention any of these payments,” Ms Opondo said.

“There is a backlog of Sh11.2 billon of VAT refunds and another Sh19.5 billion of verified VAT claims pending over the last four years. Only Sh2.3 billion of this money has been paid to manufacturers.”

She said manufacturers need the money to spur industrialisation. Manufacturers, she said expected the Government to scrap the Railway Development Levy (RDL) since its target had been achieved. The levy was imposed on manufacturers at 1.25 per cent of Cost Insurance and Freight (CIF) towards the construction of the Standard Gauge Railway. She said the tax is yet to be scrapped.

She said the Import Declaration Fee that reduced from 2.25 per cent to 2 per cent of CIF on imported goods in the 2015/2016 fiscal year, was hurting manufactures since Pre-Export Verification of Conformity (PVoC) served the same purpose.

PVoC is an inspection and verification programme carried out on goods by appointed inspection agents in the country of export. Its objective is to minimise the risk of unsafe and substandard goods entering the country.

According Ms Opondo, the PVoC hurts importers of raw materials. She said KAM had requested for striking out of IDF to lower production costs with ripple effects expected to lower prices of locally manufactured goods that Kenya exports into the region. “Other East African countries have either done away with IDF or it is very minimal. Kenya should strive for policies that put our manufacturers at par with the region so that we do not suffer,” she said.

She said the Government should also consider eliminating unnecessary duties like those charged bottlers of non-alcoholic beverages like water. The lobby group also wants the taxman to pay manufacturers for a percentage of withheld VAT to cover administrative expenses incurred in withholding the tax.

The manufacturers have however welcomed plans by the Government to cushion steel millers from effects of cheap imports from China. They hailed Rotich for proposing introduction of an additional specific rate of $200 (Sh20,000) per metric tonne for steel and iron imports. This was aimed at elevating the steel sector that has been suffering in the wake of influx of cheap Chinese imports.

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