Address costs of VAT compliance

Over the years, the administration of value-added tax (VAT) in Kenya has changed with several amendments to the related law and regulations.

Some of the changes have benefited taxpayers. For example, the temporary reduction of the VAT rate to 14 percent in 2020 to cushion the economy against the impact of Covid-19 reduced the cost of commodities and left Wanjiku with some disposable income to meet other needs.

In the same vein, the Kenya Revenue Authority (KRA) has adopted administrative measures such as the implementation of iTax that has lowered the cost of filing returns and paying taxes. The taxpayers hope this trend will continue such that paying taxes will be one of the easiest in the region.

Indeed, the KRA should be commended for its adoption of technological solutions, especially in the Covid-19 era.

The taxman was quick to set up structures to facilitate online meetings, submissions of documents such as objections to tax assessments.

However, there are areas of VAT administration where the policymakers and the KRA can do better starting with the current budgeting cycle through the Finance Act 2022. As a transactional tax, the impact of VAT in an economy is felt by all consumers.

Therefore, any challenges in its administration that lead to increased cost of VAT compliance affect the entire nation adversely. It reduces the amount of money available to people to channel to other needs such as investment projects.

However, small the project may be. On the other hand, if smoothly administered where there are minimal or no contentious areas, the positive impact may result in increased business transactions which may translate to higher revenue to the exchequer.

The VAT is one of the best performing tax heads in Kenya, which strongly supports the need to make better its administration.

According to the 2022 Budget Policy Statement, VAT revenue to October 2021 grew by 39.9 percent — the highest growth in all the broad categories of ordinary revenue.

One can only imagine the potential growth rates that could be registered if taxpayers were to spend maximum time running their businesses, as opposed to attending Tax Tribunal and KRA meetings to address tax disputes — which would not have arisen if the contentious provisions of the VAT Act were explicit, or some administrative measures by KRA were not adopted.

Another plea for taxpayers is for the policymakers to streamline the VAT refund processes and procedures.

For starters, the period within which KRA should process and pay VAT refunds should be reduced from two years prescribed under the Tax Procedures Act to one year – taxpayers need to know the status of their receivables when preparing annual financial statements.

In this 2022 budget cycle, taxpayers urge the government to remain true to its focus as stated in the 2022 Budget Policy Statement — which is creating an enabling environment for businesses and industrial recovery, job creation and safeguarding livelihoods.

This focus may never be felt by taxpayers if KRA continues to collect VAT when it is already holding their money in terms of VAT credits and refunds that could be used in facilitating recovery, creating more jobs, and safeguarding livelihoods.

The views presented here are the author’s and not necessarily those of Deloitte