Businesses brace for pain as KRA suspends tax refunds

The Kenya Revenue Authority (KRA) has suspended payment of tax refunds, signalling a tough time for cashflow for businesses owed billions of shillings by the taxman.

On Tuesday, the KRA said it was suspending all tax relief payments effective February 28, which include zero-rated goods and services from the 16 percent value-added tax (VAT) until further notice.

Board chairman Antony Ng’ang’a Mwaura said the move allows the taxman to audit and assess the tax relief processes and procedures.

“The suspension of the tax relief follows concerns from taxpayers, initiating the need to restructure rules and procedures governing tax exemptions,” Mr Mwaura said in a press statement.

Tax reliefs are given to encourage investment and job creation.

The agency says it grants an average of Sh122 billion in tax reliefs annually, totalling Sh610 billion in the last five years.

Tax expenditures increased to Sh316 billion in the financial year ending in June 2021 despite spirited efforts by the National Treasury to reduce claims by getting rid of unnecessary waivers.

KRA says the suspension and review of reliefs would increase the impact of tax expenditure on the economy by reducing tax refunds.

This will, however, hit the liquidity of businesses, most of which rely on these funds as working capital.

Tax refunds are made to reimburse excess tax paid or remitted in error in a given period and when tax deducted at source is more than the final liability. The refunds cover value-added tax (VAT), income tax, excise and stamp duty.

Cases that attract tax refunds include failure by an employer to grant relief to staff with education and life insurance policies or a mortgage on an owner-occupied property.

KRA is required to give funds for value-added tax (VAT) when duty is erroneously paid on any supply, bad debt, excess input tax on zero-rated supplies and overpayments or credits resulting from withholding VAT.

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