Last month, the Kenya Association of Manufacturers (KAM) asked the National treasury to create a special fund called VAT Refund fund, to clear a backlog of bills owed to manufacturers from VAT zero-rated supplies. The manufacturing sector in Kenya is the highest contributor to the tax revenues despite contributing only about 7.7 percent to the GDP currently.
Ideally, as taxpayers, they qualify for a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes plus exemptions that they paid which KRA has over the years failed to pay, arising in forms of tax claims, largely due to inadequate cash provided by the Treasury and lengthy verification process.
They asked for an initial monthly disbursement of Sh5.5 billion from the year starting July but the National Treasury has set aside only Ksh1 billion for Value Added Tax (VAT) refunds every month as it plans to cut down on tax exemptions which largely affects its yearly revenues.
“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,” said the Treasury chief administrative secretary (CAS) Nelson Gaichuhie.
This amount falls short of what they had asked for implying some manufacturers will be forced to put on hold investment and expansion plans, which will affect the creation of jobs for skilled youths trying to make both ends meet. Despite a directive by President Uhuru Kenyatta to state ministries, departments, and agencies to clear all verified arrears, KRA is still struggling with outstanding claims from the other year which were carried forward.