Manufacturers have blamed change in the formula applied in
calculating Value Added Tax (VAT) refunds for cash flow challenges
resulting in piling loan defaults.
The taxman in
September 2017 enforced the formula meant to ensure traders only claim
refunds for zero-rated supplies as part of the VAT regulations published
by Treasury Cabinet Secretary Henry Rotich earlier in April that year.
The
Kenya Revenue Authority (KRA), as a result, uses the ratio of
zero-rated supplies to the total taxable sales revenue to arrive at
refunds as opposed to the previous system where it was based on
difference between output and input tax.
The Kenya Association of Manufacturers (KAM), the sector lobby,
in a presentation to KRA on January 29 protested the change in the
formula which it said has made it difficult to lodge withholding VAT
claims.
The onset of withholding VAT regime at the rate
of six percent deducted by appointed agents, KAM added, has compounded
the cash crunch challenge for some firms.
Some 23
manufacturers were owed Sh3.59 billion last August, which comprised
Sh2.68 billion in withholding VAT dues and Sh908.56 million in VAT
export refund claims, according to KAM
“Some claims
lodged in 2014 are yet to be verified due to system changes at the Tax
Authority and lack of proper records at custom border points,” the lobby
said.
This is against 60-90 days period set under the KRA Service Charter.
“Currently, there is no provision that allows us to claim this
(withholding) portion of the VAT despite being in a continual VAT refund
position.”
Mr Kaushik Shah, the group governance
officer at steel roofing firm Safal, said the liquidity challenge as a
result of VAT refund delays had forced the firm with operation in 11
countries to resort to borrowing from banks.
“Effectively,
what’s happening is the portion of money that would have been paid to
us as a refund is actually lying as credit there (at KRA) because they
said we couldn’t claim and it’s lying in our account,” Mr Shah said in
an interview in Nairobi.
“This VAT contributes 3-4
percent of the cost of funding and then there’s liquidity that is tied
up that you still have to go and borrow from the bank and, in today’s
environment, to borrow from the bank is not easy.”
Gross
non-performing loans in the manufacturing sector stood at Sh51.6
billion in June 2018 from Sh39.6 billion in December 2017 and Sh37.1
billion in September the same year.
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