Connect with us

Hi, what are you looking for?

The port of Mombasa/FILE


Review of VAT Act to simplify refunds

The port of Mombasa/FILE

NAIROBI, Kenya, Jan 31 – The business community is set to receive some reprieve from the proposed Value Added Tax (VAT) Bill 2011 that will revamp the cumbersome refund claim process.

The change should address the refund backlog at the Kenya Revenue Authority (KRA) that spurred the review of the current VAT Act.

The amount of VAT refunds is estimated to run into the billions of shillings presenting a major cash flow challenge to businesses.

Speaking during a stakeholders meeting on Tuesday, the Deputy Director for Economic Affairs at the Ministry of Finance Martin Gumo said the changes proposed in the VAT Bill seek to make it more efficient and effective in refunding claims to companies.

“We put a time limit within which the refunds have to be paid. We’ve also put in another revision regarding the interest payment where refunds are not made in good time. We hope those two provisions will be able to speed up the refund process,” he said.

The period for lodging refund claims will be reduced to three months from the current 12 months, while refund claims will be expected to be paid within three months.

Furthermore, an interest of two percent per month will be placed on outstanding refund claims, with the KRA given two months to explain its failure to refund a claim.

Removal of the withholding of VAT provision that has often been seen as a major aggravator of the refund claims process is another proposal in the VAT Bill.

Also Read:  Scangroup spreads its wings in the region

The VAT Act was introduced in 1989 with the purpose of addressing the shortcomings of the sales tax that at the time was imposed on imports and manufactured goods and exclude the distribution and service sectors.

However, the Director of Economic Affairs at the Treasury Justus Nyamunga said despite one of the major functions of serving as an alternate source of revenue, the VAT Act has proven to be unproductive in the last 20 years.

Advertisement. Scroll to continue reading.

“As a result of complexity and inefficiency in the VAT system, tax to GDP and its productivity have remained relatively constant over the years after rising in the first years of introduction,” he noted.

Some hitches that prompted review of the VAT Act were its lack of clarity due to several amendments, procedural and administrative issues such as high frequency in tax filing and low compliance of about 55 percent blamed largely on distortion and tax leakages.

The general VAT rate has remained unchanged at 16 percent in the proposed Bill. However, Gumo explains that there is room to reduce the rate if the levels of compliance are improved.

When it comes to consumers, the proposed Bill will exempt unprocessed goods used by low income groups as well as extend the exemption to financial and insurance services.

Some goods will also move from the exempt list to being standard rated which range from non-roasted coffee and telephones for cellular networks to newspapers and aero planes.

On the other hand, export supplies and institutions with diplomatic privileges will be eligible for zero-rating under the proposed framework.

Also Read:  Kenyans urged to explore alternative food crops

In essence, this means public bodies and privileged persons such as the president would lose their zero-rated status.

Services such as electricity will also become standard rated at 16 percent in the proposed Bill that could likely see the cost of manufactured goods rise.

Over time the exemption and zero-rating list of items has expanded significantly to cushion the low income bracket earners against rising prices of consumer goods such as maize flour and kerosene, which Nyamunga argues have never benefited the intended consumers.

Advertisement. Scroll to continue reading.

“Under a liberalized economy, taxation is a weak instrument of targeting the poor, only expenditure can target the poor effectively. Zero-rating, therefore only passes benefits to the supplier of consumer goods and erodes the VAT base.”

Click to comment

More on Capital Business

Executive Lifestyle

NAIROBI, Kenya, Mar 12 – The country’s super wealthy individuals are increasing their holding of bonds, gold and cash, a new report by Knight...

Ask Kirubi

NAIROBI, Kenya, Mar 9 – Businessman and industrialist Dr. Chris Kirubi has urged members of the public to exercise extreme caution when making any...

Ask Kirubi

NAIROBI, Kenya, Mar 24 – Businessman and industrialist Dr. Chris Kirubi is set to own half of Centum Investment Company PLC, following a go-ahead...

Ask Kirubi

It is without a doubt that the COVID-19 pandemic has caught the whole world by surprise. Although its full impact is yet to be...


NAIROBI, Kenya, Mar 18 – Commercial Banks have been ordered to provide relief to borrowers on their personal loans, with loans eligible from March...


NAIROBI, Kenya, Jun17 – Kenya’s tea leaves manufacturer Kericho Gold, has been awarded the Superbrands Seal by Superbrands East Africa for their quality variety...


NAIROBI, Kenya, Apr 13 – As the local telecommunications industry gears up to roll out 5G networks in the country, the Communications Authority of...


NAIROBI, Kenya, Mar 22 – Airtel Kenya is offering free internet access for students in order to enable continued learning at home in the...