EDITORIAL: New VAT regulations are bad for investors

Editorials

EDITORIAL: New VAT regulations are bad for investors

Thursday, June 18, 2020 0:01

By EDITORIAL

The Treasury Secretary is certainly facing the stiffest test for a holder of the office in more than a decade. Indeed, ever since the crisis following the 2007 General Election, no minister or Cabinet secretary has been in his situation. The only difference is that the infrastructure and the supply chain remain largely in place making a post-pandemic recovery more assured.

It will be recalled he came to office at a time when the pandemic was just emerging globally. However, it is equally appreciated that there were precursors to his ascendancy. Most ominous was the economic disruption caused by another controversial electoral cycle. This paralysed the country specifically through forcing a rerun of the disputed presidential election.

Besides, commodity price have been falling as the public debt mounted. Revenue collection has been sluggish while the budget deficit has remained frustratingly wide.

That, to an extent, excuses the Treasury of egregious tax measures that have recently been exhibited under the Budget. One of them nevertheless stands out and needs to be urgently addressed. The order that procuring establishments, which in this case should include retail chains, validate suppliers for Value added tax (VAT)-compliance is to say the least uncalled-for. According to the new rules, VAT refunds will depend on the procuring entity proving that the supplier has made relevant returns.

That in a nutshell turns the buyer into a forensic auditor or at worst a regulator. It will be recalled that VAT refunds is one of the longest-running tax issues with billions regularly held up at the Treasury. The taxman on the other hand has struggled to secure the funds to pay the businessmen. What this has meant is that both small and large businesses have had to borrow for working capital given that their cash is held up by the government.

This is money they pay interest for, making Kenya quite an expensive investment destination. In the midst of the government seeking to make amends on this, it is adding another layer of problems by asking companies to play policemen as well as businessmen. Certainly, this is a law that needs to be scrapped or amended. We have a chance to do so before it is passed into law.