On 21st October, 2020, the Kenya Revenue Authority (KRA) in partnership with the Kenya Private Sector Alliance (KEPSA) hosted the first virtual Tax Roundtable meeting. This was also the 6th Roundtable since its inception in 2016, following the Authority’s 6th corporate plan that identified stakeholder engagement as fundamental in building and fostering strong relations to improve service delivery and support effective tax reforms and tax administration.
To this end, KRA has endeavoured to ensure customer-oriented efforts to engage with its stakeholders both in the public and private sectors, through its structured stakeholder engagement program. This engagement has been centered on the need to forge strategic partnerships with a diverse range of stakeholders, and also on the need to develop market oriented solutions to tax administration.
This is premised on the realization that Kenya’s development framework, Vision 2030, is dependent on a functioning and optimized taxation system. Not only will well-planned and effective tax administration help fast-track the implementation of key development projects in the country, but it will also enhance service delivery to the citizens as well as reduce the need for expensive borrowing.
The web-based meeting brought together business leaders and stakeholders’ drawn from the private sector to deliberate on the prevailing administrative tax hurdles impeding ease of doing business in Kenya. The 6th KEPSA-KRA Tax Round Table forum also provided a platform for KRA to update KEPSA members on developments relating to tax compliance and policy matters.
Specifically, the roundtable forum explored collaborative approaches on how to:
- Address concerns with regards to VAT and Excise tax refunds;
- Enhance tax revenue collection through combating illicit trade;
- Effect changes within the current tax regimes and structures to accommodate and support Small and Micro Enterprises development and growth; and
- Establish partnerships in improving compliance.
Making reference to the overall objective of the meeting, in her opening remarks, Ms. Martha Cheruto, Deputy CEO, KEPSA intimated that as a result of previous engagements, remarkable progress had been made in improving the tax environment as well as the overall ease of doing business. Kenya’s ranking in the World Bank’s Doing Business report has improved from position 108 in 2016 to position 56 in 2020 while the Paying taxes indicator has improved from position 101 to 94.
Ms. Cheruto further took cognizance of the revenue authority’s contribution towards business continuity operations within the Private Sector’s in the wake of the Covid-19 crisis. This was facilitated through the prompt implementation of tax incentives among others included in the economic stimulus measures meant to cushion businesses.
Moreover, with regards, to tax refunds, an issue that has been recurring in engagements between the two institutions, it was noted that the same had improved significantly from previous financial years. In the year 2020 KRA had paid up to Kshs. 25 billion by June 30th. This compares to 2018/ 2019 where between July 2018 and June 2019, the Authority paid VAT tax refunds of Kshs. 14.2 billion with Sh11.1 billion paid out in the last quarter of the Financial Year 2018/2019 (April-June 2019). In addition to this, National Treasury has accepted to increase the monthly VAT refunds allocation from Ksh. 1.2 Billion to Ksh. 1.7 Billion. This has greatly contributed to the liquidity and availability of capital which has been instrumental in the continuity of business operations.
On the other hand, Commissioner General Mr. James Mburu reiterated KRA’s commitment towards building a facilitative tax environment. In this regard, Mr. Mburu highlighted the advancements made in the Green Channel allowing for direct release of cargo which eases logistics and regional trade. In addition, the Commissioner General noted that the significant improvements in tax refunds was driven by strong policy engagements. In addition to this, KRA has made significant investments in tech to improve systems to address system challenges aimed at expediting settlement of claims. An example of this is the M-service which was launched as a tool to reach more taxpayers; another example of this is the i-Whistle tool to be launched in the near future to report corruption within KRA as well as instances of tax evasion.
However, he did raise concerns with regards to the growing backlog of VAT refunds and noted that it is estimated to grow by Kshs. 30 billion by the end of the financial year; thus more resources are needed from National Treasury.
Additionally, an alarm was raised on the fact that 40 percent of refunds claimed are disallowed because claimants fail to provide the necessary evidentiary documentation needed. Perhaps more engagement on this issue is needed to clarify on what is needed and the procedure.
Specific administrative concerns raised by the private sector included:
- VAT Automation Assessment (VAA)- the adjustments and documentation requested by KRA imposes significant administrative burden and cost to the taxpayer.
- Ledger balance migration from legacy system to iTax has occasioned concerns with regards to delayed updating on iTax despite liability being updated; and the fact the KRA sometimes requested taxpayers to provide information from as far back as 1992.
- It was also highlighted that iTax platform lacks a mechanism for taxpayers to recognise their overpayment from previous periods. This results in a situation whereby a company may show a liability in the current period, when in reality they are in an overpayment position.
- Delayed response from KRA on private rulings; thus the taxpayer is unable to proceed with some administrative aspects related to filing returns or invoicing.
While addressing the issues raised, KRA responded and noted:
- 1,394 ledgers (37.2%) had been cleaned that is, all information had been documented. KRA noted that the data cleaning process requires the validation of documents provided by the taxpayer. In some instances, taxpayers provide partial documentation which drags completion of the exercise. Where the taxpayer has provided ALL required documents. KRA committed to updating the taxpayer’s leger within 30 days of their receipt. This time will be monitored monthly as one of the data cleaning KPIs. The final balance to be migrated will not attract further penalties or interest.
- With regards to the non-recognition of prior year tax overpayments, it was noted that to allow the taxpayer to offset their overpayments in the ledger against their tax liabilities, the taxpayer has to apply for refund of the overpayment which has to go through the validation process. Upon approval, the taxpayer can request that the refund be utilized to pay a specific tax liability.
- On the issue of delayed response, KRA expressed that it had expanded the portfolio dealing with private rulings to ensure that moving forward rulings are provided within the stipulated timelines.
Moving forward, KRA confirmed its commitment towards creating a conducive tax regime for businesses and foster stakeholder partnerships. On the other hand, Private sector players reiterated their commitment to partner with KRA in dealing with illicit trade as part of the wider multiagency committee processes.