Kenya Revenue Authority commissioner general John Njiraini during the African Tax Administration Forum at the Windsor Hotel in Nairobi on Monday. Photo/Salaton Njau
What you need to know:
Reduction of claims through the new law will enable companies to improve cash flows as they do not have to borrow for working capital or forgo business they would have otherwise undertaken using the money.
The taxman has been accumulating an average Sh1.2 billion monthly in refunds, but the Treasury allocation for payment has consistently fallen short of the requirement.
Kenya Revenue Authority (KRA) expects monthly refund claims to fall by half to Sh600 million once the new Value Added Tax 2013 Act comes to force from mid next month.
The taxman has been accumulating an average Sh1.2 billion monthly in refunds, but the Treasury allocation for payment has consistently fallen short of the requirement.
Reduction of claims through the new law will enable companies to improve cash flows as they do not have to borrow for working capital or forgo business they would have otherwise undertaken using the money.
As at the end of July, the refund claims stood at Sh28 billion, but the Treasury has only allocated Sh15 billion in the 2013/14 fiscal year.
The refund claims were mainly a result of hundreds of consumer items being zero-rated, meaning manufacturers were allowed to claim back the VAT paid on inputs. The law does not allow KRA to retain the VAT hence the Treasury has to give back the cash remitted.
The new VAT Act was signed by President Uhuru Kenya on August 14, but was gazette on August 23. The law gives the Finance Cabinet Secretary Henry Rotich powers to give a commencement date by notice, but this must, in any case, be no more than a month after the gazettement date.
The Act basically removes hundreds of items from the list of those exempted from the tax and zero-rated. Previously, almost 400 items went untaxed, denying the exchequer billions of shillings in revenues every year.
KRA commissioner-general John Njiraini said on Monday the new law had simplified the tax collection and imposed VAT on most products.
He spoke at the Windsor Golf and Country Club in Nairobi during a tax seminar called by KRA and Africa Tax Administration Forum, which seeks to promote cooperation on tax administration issues in Africa.
Mr Njiraini said the Act would enable KRA to increase VAT tax collections by Sh10 billion.
Responding to recent calls for the VAT imposed on mobile phone sets to be removed, the KRA chief executive said was justified because it was unlikely to affect penetration of the services.
In any case, Mr Njiraini said, the most expensive items in running the service was the airtime that was already subject to 16 per cent VAT and 10 per cent excise duty.
“The question I ask in reaction to this claim (erosion of penetration gains) is: where is the evidence that penetration was driven by the tax regime? In any case, in the mobile business, the purchase of airtime may over time cost many times more the initial purchase of equipment,” said Mr Njiraini.
