Treasury to pay tax refunds in January

The Treasury on Tuesday announced that it will start paying tax refund arrears in January, opening a window of hope to thousands of businesses that are facing cash flow difficulties as a result of the delays.

The settlements will be made by issuing the claimants with tradable bonds instead of cash, a source familiar with the Treasury’s plan said.

Treasury secretary Henry Rotich said plans are under way to pay Sh10 billion of the estimated Sh30 billion backlog in January and to finish the rest within the first quarter of the year.

Mr Rotich said that a task force had been constituted to identify genuine claims from false ones in readiness for the settlement.

“We have constituted a task force to advise us on the genuine claims that we should pay and those that are not genuine. We expect that by January we will be able to pay Sh10 billion worth of the claims,” he said.

Speaking in Nairobi at an event to honour the top taxpayers President Uhuru Kenyatta directed that the arrears be paid by early next year. 

Delayed payment of the tax refunds has forced some businesses to borrow from banks in order to meet their cash flow needs, adding to the high cost of doing business in Kenya.

READ: Caution over false claims blamed for delay in VAT refunds

Mr Rotich had in June said the Treasury was considering a long-term solution to the refunds problem without going into details.

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

The Treasury has in the past issued a bond for the settlement of billions of shillings in bad debts dating back to the 1980s and 1990s. The debts amounting to more than Sh20 billion were owed to National Bank by various parastatals.

The government was forced to pay the debts on behalf of the defaulting agencies because it had guaranteed the loans.

Because the bonds can be traded on the Nairobi Securities Exchange (NSE), companies claiming refunds can convert them into cash if they so desire.

Tax experts welcomed the move, saying it was long overdue.

“The business community is very eager to see the matter of refunds settled because it has waited for very long. We are still in the dark as to when it will happen, but we hope very soon,” said Nikhil Hira, tax partner at audit and advisory firm Deloitte.

During Tuesday’s function to honour taxpayers, telecoms operator Safaricom held on to its position as Kenya’s top taxpayer.

The Teachers’ Service Commission came in second while the Ministry of Interior and National Co-ordination was third.

Mr Kenyatta said Kenya was in the process of improving the business climate through better infrastructure, including the planned tarmacking of 10,000 kilometres of roads.

This, the President said, was equivalent to the length of all roads Kenya has tarmacked since Independence. Construction of the first 2,000 kilometres is set to begin next year.

Mr Kenyatta said that 70 megawatts of geothermal power would be added to the national grid by the end of the year – a move that should deepen the ongoing drop in the cost of power countrywide.

Official data shows that geothermal power last month for the first time contributed 38.85 per cent of the national electricity surpasing hydro’s 36.78 per cent.

Mr Kenyatta said the government would continue to maintain macroeconomic stability, including in interest rates and inflation as part of its effort to improve the business environment.

The President urged Kenyans to report cases of misuse of public resources, noting that reporting could now be done even anonymously.