The decision to suspend the payment of tax refunds by the Kenya Revenue Authority (KRA) to conduct an audit of reliefs needs a rethink as it will hurt cash flow for businesses that rely on the funds as working capital.
The suspension of tax relief payments denies businesses and individuals close to Sh21 billion in liquidity when the cost of operations is skyrocketing due to a weakening shilling and fears of a slowdown in exports pegged on the global recession.
The suspension also means that requests for tax waivers and exemptions, which the Treasury usually gives, will also not be granted.
The KRA is expected to reimburse excess tax paid or tax paid in error in a given period, known as a tax refund. The different types of refunds include value-added tax (VAT), income tax, excise duty and stamp duty.
VAT is the largest component of tax refunds, totalling Sh20.04 billion in the current financial year.
The taxman has little to gain from an audit reportedly meant to catch those that are benefiting from unwarranted tax exemptions if it ends up punishing every other individual and enterprise.
While it is crucial to tighten tax leakages, locking up excess payments from businesses is likely counter-intuitive as traders can find creative ways to avoid duty payments.
Some could even hide from the taxman to avoid huge penalties that come with tax liabilities, while others opt for lengthy court fights.
Given this scenario, the KRA will likely continue falling short of its revenue collection target.
There is also a need to be clear on the audit duration to help businesses plan.
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