Treasury sets aside Sh1bn monthly for VAT refunds

The Treasury has set aside Sh1 billion for Value Added Tax (VAT) refunds every month as it plans to cut down on exemptions which gobble hundreds of billions of shillings every year.

The cash, which is being disbursed through the Kenya Revenue Authority (KRA), however falls short of the Sh5.5 billion proposed by manufacturers last week.

“If we can consistently pay Sh1 billion and maybe in future increase it, we will reduce the refunds and also because the government is trying to change its tax policy (on exemptions), the refunds will also decrease in future,” Treasury chief administrative secretary (CAS) Nelson Gaichuhie said in Nairobi on Thursday.

“Most of the claims have queries and once they are looked into and are agreeable, the Sh1 billion will help reduce the deficit.”

The Kenya Association of Manufactures (KAM), the sector lobby, last week asked the Treasury to create a special fund to guarantee an initial monthly disbursement of Sh5.5 billion from the year starting July in a bid to clear a backlog of bills arising from VAT zero-rated supplies. 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, has forced some of them to put on hold investment and expansion plans, hitting creation of jobs for growing unemployed skilled youth.

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.

“We want to see this coming down to zero so that we can increase liquidity in the economy,” Mr Job Wanjohi, KAM’s head of policy and research, said in budget proposals for consideration in the Finance Bill 2020, which will be prepared by the Treasury by July for approval by the National Assembly.

“We need creation of a special fund for the VAT refunds to be processed expeditiously.”

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 KRA carried forward some 6,106 outstanding claims valued at Sh24.3 billion from the last financial year ended in June 2019 to the current year despite a directive by President Uhuru Kenyatta to state ministries, departments and agencies to clear all verified arrears.