Blog Archive

Sunday, April 01, 2007

Where to for Kenyan businesses? Rumination #1 - Refunds

I have a high regard for Entrepreneurs (and many businesses), esp those in Kenya, who face numerous challenges to bring some semblance of commerce to a generally unappreciative populace & government ("elected" by the same populace).

I am going to tackle some of the issues faced by them over a series of blog entries...

REFUNDS - of taxes, duties, etc...

Refunds to the Horticulture Industry

: give back or restore (esp. money); repay. make repayment to; reimburse.

I have written on the delayed refunds to Oil Marketers which costs them 100s of Millions annually, only part of which are passed onto consumers, while the government mandarins/idiots berate them for not reducing prices while sitting on Oil Marketers money!

Now I come across what is an even more RIDICULOUS situation!

The GoK (Govt of Kenya) has apparently "raised" the refund kitty from $8,571 to $14.3 Million in 2007. Imagine a refund kitty of $8,571 for an industry that has arrears amounting to $43 Million! So a mere 33% will be refunded! $8,571 does not even buy a USED car!

Which idiot (who was probably paid more than $9,000) made the decision to allocate ONLY $8,571 for refunds in the first place? These exporters have to borrow at 12%+ rates from the banks to finance their operations while waiting for their refunds!

An average borrowing cost of 15% means Horticulture exporters subsidised the GoK in the amount of $6.5 Million/year!

Why is the VAT collected not refunded asap (meaning within 30 days at most)?
What are the idiots waiting for? Do they want these firms to collapse?

Even the idiots we call MPs (well, most anyway, there are some good ones e.g. Wangari Mathaai) more in annual travel reimbursements than $9,000!

Add some insult to the wound, the "increase" in VAT refunds does not take into account the constant accumulation of refunds due as horticulture exports increase. So apart from leaving a huge portion "unpaid" there is the question of new VAT submissions.

Quote from bdafrica: "Agriculture Minister Kipruto Kirwa says the move is part of the government efforts to streamline the fresh produce sector, which is currently subjected to more than 35 taxes that industry players want harmonized or scrapped altogether."

Well, duh! This is a sector that has suffered from a strong KShs for over 1 year & needs help. I want to make it clear that I whereas I do not support currency support or other non-market measures (with some exceptions), I think it is only fair that we make business EASIER for these exporters!

Challenges include:

Even the government realises that the inordinate delay in VAT refunds has led to cashflow constraints as well as hampering operations thus REDUCING levels of employment!

A sector that:
  • earns gross receipts of $637 Million (14% of Kenya's forex receipts)
  • is a large contributor to GDP (est at 25% including local sales)
  • is #3 earner of forex (behind Tourism & Tea)
  • employs upto 3 Million Kenyans within the entire process
but is treated so shabbily is a shame! Kenyan politicians should be helping exporters/farmers by streamlining the processes not building roadblocks! No wonder some firms are relocating to Ethiopia.

The slow refunds will starve these businesses of profits (& cash flow) needed to expand & compete with other producers in other countries.

Why are we killing one of our Golden Egg Laying Geese?


bankelele said...

Tax refunds from KRA, esp. VAT refunds, are very slow and are hinderance to many businesses. The oil industry is acutely affected because of the cash commitments they make to purchase.

pesa tu said...

Am nots sure about the refund figures BUT i think u r wrong.Will get u the correct figures.I think its Sh.700 million monthly for VAT refunds

coldtusker said...

Banks - The govt/KRA pays no interest or penalties for late refunds!

Pesa - I got my numbers from the East African... corrections are welcome...

Please note I zeroed in on horticulture so please try & get me what you have but esp horticulture...

Finally, KShs 700 Million in refunds is only 22% of outstanding refunds... just for the horticulture industry!

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