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Manufacturers struggle under weight of unpaid VAT refunds

Mr Sachen Gudka, KAM vice chairman. FILE PHOTO | NMG 

Manufacturers say delayed VAT refunds coupled with failure by national and county governments to settle debt has hurt Kenya’s regional competitiveness.

The debt of over Sh200 billion is for supplies and services rendered over past years.

Kenya Association of Manufacturers (KAM) chairman Sachen Gudka said companies were unable to meet financial obligations including paying for salaries, supplies and servicing loans.

“The huge sums of money owed to businesses by both the national and county governments have hurt cash-flows.


“For instance, maize millers are owed Sh23 billion by the government and related agencies,” he said.

Iron sheet and steel products maker MRM called for an urgent review of the VAT refund process to fast-track payments saying firms need money to fund daily operations.

“We, among other KAM members, recommended reversion to the old VAT regime where refunds were based on the difference between input and output VAT. We could also set up a system where the refund is based on the entire input VAT linked to exports,” said MRM chief executive Andrew Heycott. Mr Gudka said the practice where the Treasury issues credit vouchers for a portion of export VAT refunds hurts local businesses forcing many to shun exports.

“The liquidity constraints have been worsened by accumulated credits arising from the VAT refund formula and withholding VAT. At the end of June 2018, 23 manufacturers were owed about Sh3.6 billion dating back to 2016,” he said.

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