Relief as Treasury agrees to release tax refund billions

Treasury is promising a speedy clearance of the huge tax refunds backlog that businesspeople say has taken billions of shillings from their hands, forcing them to rely on expensive bank loans to remain in business.

In a radical policy shift that could release billions of shillings into circulation, Treasury said it will soon allow the Kenya Revenue Authority to pay all outstanding refunds to taxpayers who have consistently paid their dues in time – adding a tax compliance incentive to the plan.

Economists said release of the refunds, estimated at Sh6 billion, could add impetus to the stimulus packages that the government recently rolled out and speed up the pace of economic activity in the country.

Details of the plan are to be released before the end of the year when the task force appointed by Treasury to audit unpaid Value Added Tax (VAT) refunds is expected to have completed the work.

The changes are part of the measures Treasury is taking to fix the country’s tax regime that businesspeople reckon is impeding efficient allocation of capital and slowing down economic activity.

“The current environment is not taxpayer-friendly because KRA Charter is not being followed, particularly in the timeliness and courtesy with which tax audits and refunds should be done,” said Mr John Thindi, a tax director with PKF Consultants.

Finance minister Uhuru Kenya added impetus to the reforms plan with a promise that the 2010/2011 budget would capture the proposed changes and give the country its simplest tax regime in history.

“The high growth rate witnessed in 2007 was the culmination of reforms that the government undertook after the 2002 election and we can replicate that with a focus on tax reforms,” he told the fourth gathering of the Prime Minister’s roundtable forum (PMRT) in Nairobi.

But he warned those who have been filing wrong returns, tax evaders and those who have been delaying payments that they will stand at the end of the queue when the refunds payments begin.

Taxpayers say it takes an average of six months to recover the VAT funds from the taxman, a process that has seen KRA accumulate Sh6 billion in unpaid refunds.

But with the persistence of the difficult investment climate arising from the global financial crisis, the business community has lost its cool with the taxman and has taken their complaints to the highest level of government.

“When a businessman delays taxes, he faces fines and interests. But when the government delays our cash, it easily gets away with it. Our relationship with KRA must be reciprocal,” said Mr Vimal Shah, the Kenya Association of Manufacturers’ (KAM) chairman.

Analysts, however, warned that even with the new advance refund payment proposal, Treasury mandarins will still have to weigh among the different competing needs to find the extra cash to settle the tax claims.

“We all know that in an ideal situation, the government shouldn’t really hold any money belonging to the private sector,” Mr Kenyatta said. “But under the present circumstances with numerous emergency expenditures, we can’t pay everything promptly but good taxpayers will get their money long before KRA finishes processing their orders.”

Treasury’s change of heart is expected to excite the horticulture industry players who alone are owed Sh1.9 billion in unpaid tax refunds.