KRA plans to lock out traders who have been making fictitious and unsupported claims from the list of eligible recipients of the refunds.
Incidences of unmatched purchase and sales invoices, which have been declared in the VAT returns, continue to remain high month-on-month
Use of the newly installed VAT auto assessment (VAA) system has flagged out many buyer taxpayers who are claiming input VAT that the sellers have not declared as output VAT.
The Kenya Revenue Authority (KRA) Thursday said it was examining Sh22.56 billion worth of outstanding input value added tax (VAT) claims made in the past 18 months for possible fraud after it detected inconsistencies between purchase and sales invoices submitted by traders.
Use of the newly installed VAT auto assessment (VAA) system has flagged out many buyer taxpayers who are claiming input VAT that the sellers have not declared as output VAT, pointing to a possible tax leakage, the taxman said.
Deputy Commissioner for policy and tax advisory Caxton Ngeywo said KRA plans to lock out traders who have been making fictitious and unsupported claims from the list of eligible recipients of the refunds.
Official data for January 2018 show that of the 642,557 invoices valued at Sh141 billion, Sh22.56 billion input tax claims did not match what traders had submitted as output VAT, according to KRA data that captured 35,876 traders.
“We want to improve the integrity of data used for VAT refunds, meaning we will expect you to declare accurately and provide information relating to all transactions on the side of buyer and seller. This will enable us to disallow claims of unsupported VAT inputs,” said Mr Ngeywo.
“It will also help detect unreported transactions because if somebody receives goods from a seller and that seller has not made a declaration, it means the seller is in business and probably not declaring the sales.”
Incidences of unmatched purchase and sales invoices, which have been declared in the VAT returns, continue to remain high month-on-month, going by KRA data spanning 18 months from July 2016.
Acting commissioner for domestic taxes Ruth Wachira said the new tool will help KRA to discourage businesses from trading with other businesses that do not pay taxes.
Assess taxes
She said VAA will be used to assess taxes due over the past months to date until the concerns of traders about the tool are cleared.
“There are issues taxpayers have identified and we want to address that first. If you are asking for VAT refunds from the commissioner, then you must first ascertain that money was received,” Ms Wachira said.
Over the 18 months beginning July 2016, at least 70 percent of input tax claims could not be matched with the sales invoices, making them false claims suspects. Audit firm Deloitte described VAA as a tool the taxman could use to help smoke out tax cheats.
“From KRA records, this mismatch has remained at a consistently high level with the revenue authority only matching less than 30 per cent of input tax to output tax since July 2016.
"This obviously presents a possible avenue for revenue leakage,” Deloitte says in its October analysis of VAA tool.
KRA says that from the January data, it has attended to 1,590 assessments worth Sh3.5 billion out of which Sh1.9 billion has been recovered.
Ms Wachira said KRA wants to depend more on data analytics to help widen the tax base, reduce tax leakages and cut the period within which tax refunds are processed.
The move comes at a time auditors have complained of increased tax disputes between the taxman and their clients as well as slowed processing of tax refunds.
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