Caution over false claims blamed for delay in VAT refunds

Kenya’s business community will have to wait longer to learn how the government will handle claims for value added tax refunds after Treasury Secretary Henry Rotich failed to provide details of an earlier proposal by the Kenya Revenue Authority (KRA) to convert the refunds into debt.

Some Sh32 billion is owed to companies in VAT refunds, and KRA blames the delay on having to process a lot of false claims.

“We recognise the burden affected players from the private sectors carry, and we intend to develop a long-lasting solution within the next few months,” Mr Rotich said.

Last week, KRA Commissioner-General John Njiraini, speaking at a forum on the ease of doing business in Kenya, said they had recommended to the Treasury to pay the refunds in the next financial year.

“The government will have to allocate the money against other competing needs. We are suggesting that there be a framework to scrutinise the debt to be changed into bonds that can be traded to avoid a huge outflow of funds. This will stop any talk of tax refunds in as far as doing business in Kenya goes,” Mr Njiraini said.

This now has to wait for further consultations before the National Treasury releases the final details on the refund.

“We do not expect generation of refunds any more but are now dealing with past unpaid refunds. We are administratively addressing the problem and expect to settle it in the next one year,” Mr Njiraini said.

At the forum last week, President Kenyatta ordered KRA to pay all income tax-related refunds owed to tourism investors immediately and exempted from VAT services supplied by travel agents for air ticketing.

READ: Tax incentives planned to boost tourism

The Kenya Association of Manufacturers, the industry lobby, said the position on tax refunds has been compounded by the Treasury’s insufficient allocation of funds, coupled with the requirement for an audit of the entire process.

“The need for audits to ensure the process is not abused makes the process very tedious,” he said, adding this was made worse by the fact that the backlog was accumulated before the VAT reforms of 2013.

But economists maintain that an audit of the claims must be carried out before the refunds are made.

Kwame Owino, chief executive officer of the Institute of Economic Affairs, said it was wrong for KRA to hold up to Sh30 billion of capital belonging to businesses when it targeted raising Sh1.12 trillion in tax revenues.

“There could be cases of collusion between KRA staff and those seeking refunds,” he said by telephone, “and the Treasury should authorise more payments to KRA. It is also not clear which of the claims is genuine.”

Exporters at the Mombasa Tea Auction seeking refunds have denounced the delays. 

“Seeking refunds for VAT paid on tea is a major administrative bottleneck. It is costly and time-consuming,” said the East African Tea Trade Association managing director Edward Mudibo.

“The whole process — from the time the VAT is paid by an exporter to the time it is refunded — can take three or four years. The VAT amount is the exporter’s working capital. VAT at 16 per cent constitutes a huge amount of money that simply shouldn’t be tied up,” he added.

KRA did not respond to e-mail queries about the matter.