State slashes money allocated for tax refunds

By Kenneth Kwama

Efforts by the Kenya Revenue Authority (KRA) to speed up tax refunds to businesses could halt following a decision by the Government to reduce the amount of money allocated for the exercise.

KRA’s Commissioner General Michael Waweru told journalists on the sidelines of a continental tax conference in Nairobi that the Government has reduced the amount set aside for tax refunds by Sh100 million per month.

But the commissioner added that this would not dampen efforts to clear billions owed to taxpayers in unpaid tax refunds.

"By this time last year, we were getting Sh1.18 billion per month from the Government for the refunds, but the figure has reduced to Sh1.08 billion. This is Sh100 million less per month than the figure we got last year," said Waweru.

The Commissioner, however, dispelled fears that this could lead to a bigger backlog of pending Value Added Tax (VAT) refunds, saying both the Authority and Treasury were working to find ways of easing the burden on taxpayers. The continued pile-up of VAT refunds has been a persistent cause of hostility between Kenya’s businesses and the taxman and the reduction of money allocated for the refunds could worsen the situation for business owners being affected by KRA’s sluggish settlement of tax refunds.

cash flow

Some tax experts are on record saying that the lack of refunds and offsets is affecting the cash flow of businesses, especially small and medium enterprises (SMEs).

Waweru, however, said revenue collection was on course and that by end of December last year, the Authority had recorded 16.2 per cent growth over the previous year’s figures. Treasury has been toying with the idea of overhauling the entire VAT regime to eliminate the backlog of refunds and Waweru disclosed it has already formed a committee that will review the VAT system. The list of firms owed unpaid VAT refunds include big manufacturers, especially those involved in export business.

Others whose cash flows have been disrupted by delays in VAT refunds include building contractors and fresh produce exporters.

Banks and oil companies are also among major claimants of tax refunds and there have been reports that some oil firms have been forced to seek funding from commercial banks to shore up their liquidity and make upfront tax payments due to these delays.