Experts want KRA to speed up tax refunds

By James Anyanzwa

Auditing firm Deloitte have petitioned Government to legislate the time frame within which the Kenya Revenue Authority (KRA) should hold on to tax refunds.

The consultants also proposed the refunds be allowed to attract interest if they are not paid within the stipulated period.

Nikhil Hira, a tax expert at the firm, said the cash flow of many businesses is being affected by KRA’s sluggish move in settling tax refunds.

Reverse levies

Mr Hira said firms should also be allowed to offset the amount owed to them by the taxman.

While in Kenya refunds associated with VAT have to be claimed, Tanzania and Uganda levies reverse VAT. Under this method, firms make VAT entries in their books and simply recover it directly from expected VAT payment.

Mr Hira said lack of refunds and offsets is starting to affect cashflow severely and particularly for the small and medium enterprises (SMEs).

"The amount of refunds being held at the KRA is unbelievably huge and this is negatively affecting the cashflow of many businesses," Mr Hira told reporters in Nairobi yesterday.

Mr Hira’s request was part of recommendations that the auditing firm expects the Deputy Prime Minister and Finance Minister Uhuru Kenyatta to address in the 2010/11 budget scheduled for June 10.

Other recommendations include widening of the income tax brackets, more punitive measures towards curbing corruption, tax incentive to facilitate the competitiveness of local manufactured goods in the export market and a reduction in corporate and value added tax (VAT).

"I think reduction in VAT is important. It will give an impetus to spending. It should go down to 15 per cent or 14 per cent," said Hira.

The continued pile-up of VAT refunds has been a persistent cause of hostility between Kenya’s businesses and the taxman that the Government has agreed to help resolve the problem by raising the monthly refund payment to Sh1 billion from Sh750 million.

The KRA has, however, blamed the tax refund delays to a surge in fake claims.

False claims

"False refund claims are still a common practice. This has necessitated a stringent audit process to ensure false claims do not go through," KRA Commissioner General Michael Waweru, said last year.

"As a result, the time taken to process refunds is stretched."

It is widely argued that Kenyan firms will carry the heaviest cost when East Africa launches its common market next month (July), owing to high level of taxation in the country compared to its partners.

Unlike other EAC member states, Kenyan businesses are hard-hit by many levies and pay the highest total corporate tax rate.