Industrialists seek special fund for VAT refunds

Kenya Association of Manufacturers
Kenya Association of Manufacturers (KAM) head of policy research and advocacy Job Wanjohi. PHOTO | SALATON NJAU | NMG 

Industrialists are lobbying the Treasury to create a fund in the year beginning July 1 for timely payment of tax refunds to ease their perennial cash flow challenges.

The Kenya Association of Manufacturers (KAM), in its 2020/21 budget push wants changes to the Public Finance Management (PFM) Act to compel the Treasury and National Assembly allocate billions of shillings monthly to the Kenya Revenue Authority (KRA) to clear value-added tax (VAT) refund claims.

Mr Job Wanjohi, the lobby’s head of policy and research, said KAM was looking at a monthly allocation of around Sh5.5 billion to clear backlog arising from zero-rated supplies every month.

Manufacturers, he said, are currently owed about Sh27 billion in accumulated VAT refunds, a figure which mirrors Sh26.2 billion given by the KRA last September.

“We want to see this coming down to zero so that we can increase liquidity in the economy,” Mr Wanjohi said during pre-budget hearings organised by the Institute of Economic Affairs (IEA) in Nairobi.


“We need the creation of a special fund for the VAT refunds to be processed expeditiously. We are looking at an initial Sh5.5 billion per month which we think will be sufficient to clear outstanding VAT refunds.”

The taxman has over the years struggled to pay VAT claims, largely due to inadequate cash provided by the Treasury and lengthy verification process.

The mounting arrears, manufacturers have said in the past, have forced some of them to put on hold investment and expansion plans, hitting creation of jobs for growing unemployed skilled youth.

The KRA said it processed 1,136 claims worth Sh5.6 billion between July and September 2019, leaving a backlog of Sh26.2 billion at the time.

The taxman has backed a separate system — dubbed Green Channel— for processing claims for firms operating in sectors and dealing in products with low risk of fraud to help expedite payments.

This initially targets companies in milling, horticultural and tea sectors whose claims will be processed and expressly paid through the new window.

“Introduction of a green channel allows for express payment of refunds once lodged by taxpayers. This approach will favour taxpayers that are consistently tax compliant,” Commissioner for Domestic Taxes Elizabeth Meyo said in a statement.

“(We have also established) a dedicated unit to undertake data correction and ledger update.” The National 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 in export business.

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

Treasury statistics showed in December that only Sh14.99 billion, or 28.19 percent, of the Sh58.18 billion pending bills accruing to State ministries, departments and agencies at the end of the financial year ended June 2019 were validated, with the remainder either contested, still under verification or historical.