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Public Notice on Refund and Offset of VAT Credits from Withholding VAT

Introduction

Kenya Revenue Authority (KRA ) published a Public Notice on 14th September 2019, the Statute Law (Miscellaneous Amendments) Act, 2019.

Purpose of the Public Notice

The Public Notice was to inform VAT registered taxpayers in Kenya and any other interested persons about the amendments contained in the VAT Act (2013).

The amendments contained in the Public Notice are in regard to refund and offset of VAT credits resulting from Withholding VAT provisions. These VAT amendments are some of the items contained in the tax proposals in the National Budget that was presented in Parliament on June 14th 2019.

Effects of excess VAT credits

The amendment of the VAT Act regarding Withholding VAT is a welcome move in the right direction. Many VAT registered taxpayers have suffered immensely because of the inability to utilize the Withholding VAT in their VAT system. This resulted in the VAT amounts being carried forward indefinitely.

The carrying forward indefinitely of the Withholding VAT amounts has far-reaching implications on the taxpayer and the country at large. The following are some of the effects of carrying forward indefinitely the excess VAT credits from Withholding VAT that taxpayers are not able to utilize within the VAT system the shortest time possible:

  1. Negative effects on operating capital thus affecting cashflows.
  2. Negative effects on business operations due to reduced operating capital.
  3. Increased bank debts to caution the cash flows.
  4. Delay of any business expansion plans.
  5. Sacking of employees due to cash problems experienced.
  6. Tax discrimination of domestic taxpayers.
  7. Creation of a negative investment environment for local and international investors.
  8. Negative effects on tax revenue – taxpayers need their operating capital to transact business that will generate tax.
  9. Negative effects on the country’s economy.

Current qualified refunds

Currently, without the amendments, the VAT Act (2013) allows refund of VAT input incurred only in supply of zero-rated supplies which are either:

  1. Local supplies explicitly listed in the Second Schedule of the VAT Act.
  2. All exports.
  3. Any other supply declared as zero-rate by the Cabinet Secretary to the National Treasury.

Withholding VAT is from taxable supplies that are not zero-rated.

The amendments

The Withholding VAT amendments allow the VAT registered taxpayers with excess VAT credits resulting from Withholding provisions to lodge VAT refund claims for the amounts in KRA Refund Section using the i-Tax platform. Once the refund claim amounts are confirmed as payable, any tax debts in VAT will be settled first.

In case there will be any balances payable to the taxpayer, the taxpayer can choose the amounts to be offset against any current or future tax debts in any of the other VAT systems administered by KRA.

The taxpayer will be required to write a letter instructing the tax Commissioner about the tax offset they require. The tax debt offsets can be in:

  1. PAYE.
  2. Corporate income tax.
  3. Personal Income tax.
  4. Future VAT.

Withholding VAT credits that qualify

The following are the Withholding VAT credits that will qualify for a refund:

  1. Any Withholding VAT credits withheld within thirty-six (36) months before 23rd July 2019.
  2. Any Withholding VAT credits after 23rd July 2019.

Period of application

  1. Refund claims and any offsets for any Withholding VAT credits within thirty-six (36) months before 23rd July 2019 to be lodged within the next twelve (12) months from 23rd July 2019.
  2. Refund claims and any offsets for any Withholding VAT credits after 23rd July 2019 to be lodged (applied) for within the next twenty-four (24) months from the date the tax became due.

Where to apply for the refunds

Application for refunds is done to KRA Tax Refunds Section. The affected taxpayers will lodge the applications to KRA Tax Refunds Section using i-Tax platform.

Comments

  1. Currently, any VAT refund should be applied for within twelve months. However, in this VAT amendment, future applicants for VAT refunds resulting from Withholding VAT credits have twenty-four (24) months to lodge the applications. We hope that this time extension will be extended to all applicants of any VAT refunds because all taxpayers should be treated equally.
  2. Though the amendments are in the right direction, this is not enough unless the government will also sort out the perennial lack of money in KRA to refund the VAT claims. The VAT amendments should go hand in hand with increased money to KRA to refund the claims. If this does not happen, then the taxpayers will face the same problems which will be extended to the nation.

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