The Hidden Benefits Of The VAT Bill 2013
THE VAT Bill was not formulated to help the government raise revenues but to ease compliance with the tax in Kenya and thus improve the country’s investment climate, the Kenya Revenue Authority argues.
KRA said because of the difficult and bureucratic tax payment processes, Kenya has remained a less attractive investment destination.
Indeed, according to a 2013 global World Bank and PWC report on paying taxes, Kenya is ranked 164 out of 185, a worse position than the rank of 153 in 2011 and 154 last year. Countries like Mauritius rank at number 12, Rwanda at 25, South Africa 32 while Uganda is 70 places ahead of Kenya.
“If we really want to improve Kenya’s competitiveness, we have to address the fundamental problems that make VAT so onerous to comply with and therefore a threat to Kenya’s investment climate competitiveness,” KRA commissioner general John Njiraini said last week.
Njiraini said the issue of revenue mobilisation was a secondary consideration.
“Kenya must improve its investment climate competitiveness through reform of tax process if we are going to compete,” he said.
“We must do this…otherwise people (investors) are going to go elsewhere, they are going to take their jobs elsewhere,” he cautioned.
The paying tax report ranking influences the Doing Business ranking that is done by the World Bank. The study report shows that in Africa, consumption taxes are the cause of the difficult compliance times in paying taxes.
According to the report, the average time taken by a Kenyan company to comply with VAT is 340 hours, out of which 243 are spent on complying with the tax.
“An average company in Kenya spends 71 per cent of its time complying with VAT and the balance in complying with all the other taxes,” Njiraini said.
Njiraini said the new Bill with make it easier to file VAT returns since it will lessen the administrative requirements and procedures to do this.
“If you have a simple tax where the rules are clear, then filling is easier…if a law is complicated and it has too many rules, too many exceptions, naturally at the administration level, you will be required to file a lot more details,” Njiraini said.
The commissioner said in order to reduce the complexity of filing, then the scope of exemption must be reduced.
“For instance if VAT of 16 per cent is applicable on all good without exemption, then compliance becomes so easy.”
KRA said VAT works on the input-output principle where suppliers recover their VAT input costs from consumers.
“Exemptions to this general rule should be minimal because if you don’t recover it from the consumer, who are you going to recover it from?” Njiraini asked.
According to Njiraini, zero rating of goods transfers the burden of recovering the VAT input cost from the consumer to the government leading to VAT refunds.
“In effect, government subsidises consumption of zero-rated items…zero rating therefore poses a very serious policy question,” the commissioner said.
As a result of the exemptions, the government has been forced to scale down on development expenditures to meet the VAT input costs for manufacturers in terms of VAT refunds.
“Should public expenditure priorities be towards consumption subsidy, public services and infrastructure…if we are to make this choice, what should we be doing?