Taxman set to unveil new rules on VAT refunds

According to KRA, Sh12.4 billion in claims cannot be paid until the amount is audited and verified.

READ: VAT refund arrears pile despite Kibaki order

“As at the end of April, we owed Sh18.3 billion. Out of this Sh8.7 billion was tied to withholding VAT while Sh3.7 billion is pending export confirmation. The onus to prove the claims lies with the claimants,” added Mr Onyonyi.

“Taxpayers remit payments to withholding agents who claim the amount in their returns. Sometimes the withholding agent disburses the money late. We only pay for funds that have been remitted to us,” said Mr Onyonyi.

Despite Treasury providing Sh1 billion monthly for KRA to make timely payments, the backlog has prompted Parliament to act.

The Parliamentary Committee on Finance, Trade, and Planning has proposed, in the VAT Bill 2011, that KRA pays penalties for delays in refunds. Other changes include scrapping existing exemptions.

“We want to introduce a penalty on the part of KRA so that late payments to taxpayers also attract interest.

‘‘We expected the amendments to be included in the Finance Bill 2012/13 after it was omitted last year,” said Nambale MP and committee chairman Chris Okemo.

These proposals have, however, been delayed after Treasury proposed to overhaul the entire VAT system.

“The Government has cash flow problems and revenue shortfalls and it’s unable to pay promptly,” said Mr Okemo in a telephone interview.

Delayed VAT refunds have been a major problem to businesses, impacting negatively on their working capital and forcing some to take overdrafts.

Difficulties in generating cash has forced many firms to rely on highly-priced bank loans to finance their operations, dashing hopes of the economy’s ability to create jobs this year, official data indicates.

The Central Bank of Kenya says that short term borrowing by firms in the form of working capital is increasingly accounting for a large fraction of new credit.

Industry lobby Kenya Association of Manufacturers (KAM) welcomed KRA’s move but was quick to add that solutions to the backlog lie in the proposed VAT Bill.

“We have also asked our members to send us updates on the pending refunds. We welcome the proposed guidelines by KRA,” said Mr Jaswinder Bedi, the KAM chairman.

But exporters were sceptical of the proposed law, doubting its ability to resolve the refunds crisis.

“We are collectors of VAT on behalf of KRA. We have put in proposals on collecting agents. If you sell locally as a small scale grower, there is no charge on VAT but exports are subjected to VAT.’

‘‘We propose to remove income duty on some of our produce which we see as food items. We have had these issues for years and it remains to be seen what will happen,’’ added Kenya Flower Council chief executive Jane Ngige.

VAT withholding was introduced to help the government recover money from taxpaying consumers.

Agents are awarded VAT withholding certificates, which they can use to offset the VAT withheld.

However, there have been complaints over delayed issuance of withholding certificates making it impossible for agents to offset the amounts from what they collect for KRA.

VAT is a consumption tax whose real cost is borne by the final user of a product or service.

Businesses acting as the taxman’s agents levy the tax on consumers and are later expected to reclaim the same through refunds.

VAT has over the years accounted for a quarter of the total tax collection despite the fact that it applies on most goods and services, with analysts blaming the stagnation on the complexity in its administration and the high rate of 16 per cent.

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