VAT: New tax refunds system set to expedite payments
Taxpayers registered for the Value Added Tax (VAT) obligation often find themselves in a refund position during their transactions. A refund position, as the phrase suggests, means that the taxman owes a taxpayer some money.
A taxpayer could end up in a refund position because of many factors, the most common being excess input tax resulting from zero-rated supplies.
A taxpayer could also end up in a refund position from overpayments or credits resulting from the withholding VAT system as well as taxes paid in error. VAT paid on bad debts is also another probable reason. The law requires taxpayers in a refund position to apply for the refund within 12 months.
For a while now, processing of VAT refund claims has been taking long due to the numerous claims lodged by the taxpayers as well as the verification process to separate genuine from manipulated claims.
To facilitate efficiency in tax refunds, Kenya Revenue Authority (KRA) has been working to ensure that business continuity is not affected in the process. For instance, in the 2018/19 financial year, KRA paid out Sh14.2 billion in refunds.
Going forward, KRA will be processing and paying refunds of even a higher value and at a faster rate, thanks to a raft of measures in the pipeline. A key measure that will give KRA a substantial advantage is the simplification of the refund processing procedure.
The simplified approach will be based on a green channel framework whose overall objective is to expedite the payment process of refunds from the low-risk sectors of the economy. The new approach will be instrumental, as it will create efficiency in the verification procedures.
KRA has already identified low risk sectors and products whose refund claim payments will be processed under the simplified green channel framework. The sectors include horticulture, floriculture, fish products, millers, bakers, dairy products and pharmaceutical companies.
Others are sales to Export Processing Zone enterprises, transport, mining companies, transportation of passengers by air carriers on international flights and export of sisal. County institutions dealing with the supply of natural water for industrial and domestic use will also benefit from the new framework.
The procedure will involve minimal verification processes which guarantees taxpayers expedited payment of claims. Most importantly, the green channel will go a long way in enhancing business cash flow predictability and planning.
Apart from revenue mobilisation and collection, KRA’s mandate also extends to trade facilitation. The simplified VAT refund process is, therefore, a significant trade facilitation tool to ensure that business cash flows are not interrupted.
The green channel framework is not only in line with KRA’s mission of building taxpayers’ trust but also conforms to the world’s best practices such the International Monetary Fund’s recommended Tax Administration Assessment Tool, which demands processing of VAT refund claims without undue delay.
Taxpayers who will benefit from the simplified green channel framework will be required to be tax compliant with no record of fraud related issues. The taxpayers will also be required to adhere to the conditions governing the framework as well.
Apart from removing the bottlenecks affecting processing of refunds, the framework will go a long way in enhancing tax compliance levels. —The writer is the Commissioner for Domestic Taxes Department at KRA