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KRA rejects Sh400m tax refund claims for zero-rated supplies

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Times Tower. FILE PHOTO | NMG

The taxman rejected claims of more than Sh400 million for zero-rated supplies in the three months to September as it raced to clear arrears that last month hit Sh26.2 billion.

Kenya Revenue Authority (KRA) cited fraud in the claims for excess taxes remittance for goods and services that attract zero value-added tax (VAT) —as opposed to the standard 16 percent levy — paid once a sale is completed.

The taxman carried forward some 6,106 outstanding claims valued at Sh24.3 billion to this financial year despite President Uhuru Kenyatta’s directive to State ministries, departments and agencies to clear all verified arrears by June.

Some 5,957 claims valued at Sh26.2 billion were subsequently awaiting processing as at September 30, the KRA said.

Lengthy verification process amid inadequate cash provided by the Treasury has delayed the processing and payment of VAT refunds, piling pressure on cash flow positions of companies.

KRA Commissioner for Domestic Taxes Elizabeth Meyo largely blamed the prolonged delays on fraudulent claims lodged by exporters.

Exporters are under VAT Regulations 2017 required to submit to KRA a copy of the invoice showing that the recipient of the supply is a person outside Kenya and also produce proof of payment.

For transit goods, a copy of the bill of lading, road manifest, or airway bill and the export or transfer entry certified by an officer of customs at the port of exit is also required.

“Claims from fraudulent exports lodged by dishonest taxpayers require KRA to confirm the existence of exports hence prolonging the period in which such claims can be approved and paid,” said Ms Meyo.

“(Another challenge is) inadequate funding to pay refunds due to the high number of taxpayers who default in paying taxes. Some taxpayers use monies due to the government as tax to fund their business instead of remitting the same as taxes due.”

The Treasury in June formed a team to “quickly validate” the outstanding refunds which the then minister Henry Rotich acknowledged had hurt cash flow and liquidity of businesses, especially manufacturers.

The pending bills related to VAT zero-rated supplies were to be settled in two months, according to the budget statement on June 13.

“The fact is there are still refunds of almost Sh25 billion due to industries on what we call exports-related credits.

“They (Treasury and KRA) were supposed to have validated all the refunds by June 30,” Kenya Association of Manufacturers chairman Sachen Gudka told the Business Daily.