KRA removes tax agents in bid to end refund delays
A group of Nakuru residents submit their tax remittance forms to Kenya Revenue Authority in Nakuru in the past. Suppliers of goods and services will start paying withholding taxes directly to the Kenya Revenue Authority (KRA) as the body seeks to get to the bottom of delayed tax refunds.
Suppliers of goods and services will start paying withholding taxes directly to the Kenya Revenue Authority (KRA) as the body seeks to get to the bottom of delayed tax refunds.
The Kenya Revenue Authority has been using banks, insurance firms, Saccos, ministries, local authorities, parastatals, and hospitals to deduct and remit value added tax (VAT) levied on goods and services supplied to them in a bid to enhance tax compliance.
Suppliers would get a VAT certificate from the agents, which they later used to claim VAT refunds from KRA as it is a consumption tax to be paid by end users and not businesses. But this system has led to cash flow problems for suppliers of VAT-charged goods or services who have had to contend with long delays in getting the refunds. the revenue collector now says it has deregistered all VAT withholding agents with effect from this month. “The deregistration is among the measures geared towards providing lasting solutions to the VAT refund problem,” KRA said in a statement, adding that the agents should remit all VAT withheld up to June 30. Refunds would also be considered for up to this date.
This means that all types of consumers will pay suppliers VAT on top of the value of goods and services and the suppliers will remit the consumption tax to KRA. Analysts say the tax collector could be exposed to revenue losses by businesses who may default on VAT payments by removing it from their pricing system in a bid to grow sales from price-sensitive consumers.
“It will free up significant cash flow among businesses whose products or services are subject to VAT,” said Nikhil Hira, a tax partner at Deloitte Eastern Africa, picking agents and suppliers as the key winners of the move.
Because of the refund delays, some businesses have had to borrow money to meet their short-term obligations, driving up their operational costs. KRA does not pay interest on delayed refunds.
The delay in refunds has been blamed on long and tedious process of auditing genuine claims besides inadequate funds to make the payments.
The new system will allow businesses to deduct VAT due to KRA from the outstanding tax refunds, a move that is expected to improve their cash flow position. For agents, the move is set to make their operations easier since they will only deal with suppliers whenever they procure goods or services. “It will solve the administrative burden of making two separate payments when clearing invoices for taxable supplies,” said Alkarim Jiva, the chief financial officer at Diamond Trust Bank.
