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VAT Formula Requires Amendment Says KAM at Pre-Budget Hearings 2020/2021


The Institute of Economic Affairs (IEA) has started a two-day period of pre-budget hearings, with the focus being that there should be a re-evaluation when it comes to the proposed Value Added Tax (V.A.T) formula.

Adding their voice to the controversy that has already dogged the proposed VAT formula is the Kenya Association of Manufacturers (KAM), which was proposed by the National Treasury last year in the VAT Amendment Regulations of 2019, which seeks to retain the formula from two years ago that seeks to ensure that traders can only claim refunds for zero rated supplies, as well as the withholding in VAT by a reduction of four percent, down from the previous six that had been stipulated prior to the reduction.

“Mr Job Wanjohi, the Head of Policy Research and Advocacy at the Kenya Associaton of Manufacturers (KAM) says that the focus the Budget 2020/2021 period should be on creating a special fund to facilitate the VAT refund.

“The Kenya Revenue Authority is under allocated because they do not receive funding to process all the V.A.T. refunds. So there should also be looking at the amendment of the Public Funding Management Act, so that we can see the reduction of Kshs 27 to Kshs 30 billion of stated VAT refunds,” he says.

Mr Wanjohi further says that another focus should be on amending the Investment Deduction Allowance (IDA), as well as that for the Income Tax of both constructed warehouses and existing buildings.

The concern by KAM comes five days after the private sector, led by KAM, had urged the Kenya Revenue Authority to make a change this year and hurry up of refund the VAT claims of business people, who tend to suffer from the credit crunch, estimated to be worth billions, that comes with the delay.

While the Statute Law (Miscellaneous Amendments Act) mended the VAT Act to further allow for KRA to refund the excess of VAT for withholding of the said Act, there has been discontent among businesses people that that it should be speeded up.

This is despite KRA stating in the last quarter of 2019, that it is committed to clearing 6,000 VAT refunds by the end of the first quarter of 2020, amounting to Kshs 27.6 billion.

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The concern for KAM, as Mr Wanjohi, states is that the change of the VAT formula, which is already hurting business people who are registered for VAT, as they lack the much-needed cash flow that is requisite for businesses to run, especially with zero-rated supplies.

The challenge for KRA has been to address all the VAT refund claims that come to it, but also assess their validity.

Another stakeholder represented by George Sanga Kavulunze, the Country Co-ordinator for Kenya Water Partnership, says there should be increased budgetary allocation for sanitation.

“ This is because 29 percent of Kenyans are the only ones that have access to sanitary services while the majority are faced with the deficit,” he says.

Yet, the right to water and sanitation is legal, being covered under Artcile 43 of the constitution which provides that every Kenyan should have access to the right health standards, including water and sanitation.

The question is why, then, should 10 million Kenyans, as estimated by the draft 2020 Budget Policy Statement, be living in informal settlements?

Mr Kavulunze says that the national government should ensure that the community groups should focus on sustainable sanitation. He says that policies under the Big Four Agenda, such as affordable housing cannot be accomplished without proper sanitation.

Article 201 of the Constitution allows for the public to submit their views regarding financial matters and to be submitted to Parliament by the 30th of April 2020, so as to foster economic growth and development.

The Institute of Economic Affairs is in its 21st year of gathering public views regarding Pre-Budget Hearings as part of the four process required by National Treasury for the four step budget process.

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