Pain as unpaid tax refund claims hit Sh16 billion


The government accumulated an extra Sh4 billion in tax refund claims by businesses. CONCEPT | SHUTTERSTOCK

The government accumulated an extra Sh4 billion in tax refund claims by businesses in the six months between May and October 2023, pushing the overall unpaid amount to Sh16.3 billion, and adding a squeeze on traders already scorched by liquidity challenges.

The tax refund claims were mainly in respect to value-added tax (VAT) which accounted for 83 percent of the claims, the rest being claims related to income tax, the National Treasury reported in the 2024 Budget Policy Statement (BPS).

Treasury reported the tax refund claims as part of the special category of pending bills the government faces while others include pension arrears and legal liabilities.

“The Kenya Revenue Authority (KRA) had reported tax refund claims amounting to Sh16.34 billion as of October 31, 2023, comprising Sh2.75 billion income tax and Sh13.58 billion in respect of VAT,” Treasury stated in the BPS.

Demands by the end of October were an increase from Sh12 billion claims that the government owed businesses by May 2023, following the settlement of Sh20 billion claims by April. VAT refunds are mostly claimed by businesses dealing in goods and services, which are zero-rated from the 16 percent VAT.

These include mostly foodstuffs such as maize flour and cooking oil meant to shield the poor from the high cost of living.

However, the government has been trying to reduce the number of zero-rated items as part of a conditional arrangement it has with the International Monetary Fund, which is aimed at reducing the budget deficit by increasing tax collections.

Moreover, the government has argued that some of the zero-rated items do not need monetary assistance as they can do without the exemptions.

Businesses in some sectors have previously indicated that benefits coming from the removal of some taxes were yet to penetrate their operations, which could explain why the tax refund claims, mainly VAT, went up from May after a downward trend in prior months.

The Kenya Association of Manufacturers (KAM) last month indicated that goods makers in the country were yet to benefit from the removal of taxes on raw materials and inputs for some sectors, which could explain part of the cause for the rise in VAT refund claims.

“The sector is also yet to experience a win in the removal of taxes and levies on raw materials and inputs for the paper, steel, and cement sectors,” KAM stated.

KRA last year indicated that the stock of refunds by April stood at Sh31.2 billion.

“As of April 2023, we had outstanding stock at Sh31.2 billion. We have paid out Sh20.4 billion so far and have a pending balance of about Sh12 billion. Some of the stock of arrears is from 2022,” KRA said last year.

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