Treasury releases over 26bn/- for VAT refunds

07Nov 2017
Francis Kajubi
The Guardian
Treasury releases over 26bn/- for VAT refunds
  • • In the new Tanzania Economic Update released yesterday, the World Bank attributes delays in VAT refunds to the lengthy verification process for refund claims, conducted as part of the anti-corruption drive

The government will soon start settling claims on VAT refunds, which have not been repaid for about two years now following Treasury’s recent release of over 26bn/- for the exercise, Smart Money has reliably learnt.

According to a senior official at the Ministry of Finance and Planning, the 26.54bn/- given to Tanzania Revenue Authority (TRA) for the repayments was released late last month.


Chief Communication Officer Benny Mwaipaja said the release of the funds followed completion of verification of the submitted claims, most of which were found to be fake. Had the government not been keen, it would have lost about 114bn/- by repaying false claims.


“We received claims worth about 141bn/- but out of that only 26.54bn/- have been proved to be genuine,” Mwaipaja told Smart Money last week noting that such massive cheating was detrimental to the government’s fiscal position and the whole national economy at large.


The Commissioner General of TRA, Charles Kichere, confirmed receipt of the refunds and said those eligible for reimbursement will soon be informed on the repayments.


Like Mwaipaja, the chief taxman also censured dishonesty in claiming VAT refunds. According to him, the cheating has had a big role in the delay of clearing the claims.


Manufacturers have been among the most hurt by the refund delays, which the Confederation of Tanzania Industries (CTI) says has devastated the operations of its members.


The lobby group says VAT refund claims by its members increased by more than 3bn/- between September and October this year.


“We have now completed the exercise to establish genuine claims and those who deserve to be repaid therefore manufacturers should not be worried any more since we are soon going to officially inform them about the repayments,” Kichere told Smart Money.


CTI’s Acting Director of Policy and Advocacy, Akida Mnyenyelwa, said the government had said it would settle the VAT claims last month after failing to do so in September when it had promised to make the repayments.


He said further delays to sort out the matter would not be good for the industrialization agenda. Mnyenyelwa added that the claims of the 14 CTI members seeking to be refunded topped 18.74bn/- at the end of last month from 15bn/- in September.


Claims on VAT refunds have increased drastically since 2015 following the new government’s initiative to verify them as part of its measures to control revenue leakages. Since then the repayments have been lacklustre leading to some quarters of the private sector to complain bitterly about the austere fiscal stance of the new administration.


In June, Treasury said lack of supporting documents was the main cause for the slowdown in repaying the VAT refunds. It said audit results of some of the submitted claims showed that only 10 per cent of them were genuine.


In a recent country report, the International Monetary Fund (IMF) calls on the government to address expeditiously the private sector’s concerns about matter. The Bretton Woods institution also wants the authorities to put in place a transparent and predictable mechanism for auditing submitted claims.


Treasury says the government was committed to settle verified VAT refunds on time, and going forward will put in place a transparent and tight mechanism for controlling misrepresentation of the claims. Mwaipaja however shouldered blame on the refunds claimants for causing unnecessary delays in the auditing process by mostly submitting false documents and inflating claims figures.


In the new Tanzania Economic Update (TEU) released yesterday in Dar es Salaam, the World Bank  says that delays in settling the claims has been one of the factors behind tight liquidity in the economy. According to it, speeding up the VAT refunds should be one of the measures the government takes to significantly boost economic growth in the near term.


Other measures outlined in the TEU that could facilitate the achievement of the government’s growth targets are improvement of budget execution and enhancement of the business environment.


“The authorities could further increase liquidity and directly improve the cash positions of private sector enterprises by clearing the backlog of VAT refunds,” the global lender notes in the report titled: Managing Water Wisely: The Urgent Need to Improve Water Resource Management in Tanzania.


“It could also implement measures to ensure a faster repayment process and to conduct risk-based auditing. These measures would support business investments, including by exporting firms,” the report reads.


“Delays in VAT refunds are partly attributable to the lengthy verification process for refund claims, conducted as part of the anti-corruption drive. However, when VAT refunds and payments to contractors and suppliers are delayed, businesses suffer from cashflow shortages and are not incentivized to be compliant,” it adds.


The 10th edition of the TEU, which reviews the current state of the economy and near term outlook, says Tanzania’s economic growth has softened, with the rate declining to 6.8 per cent in the first half of 2017, compared to the figure of 7.7 percent recorded in the same period in 2016.


Despite the slackness in the performance of the economy, the World Bank says Tanzania was still amongst the strongest performers in the region. At 7.0 per cent, in 2016, Tanzania’s rate of economic expansion exceeded that of any other EAC countries.


Across Africa, this rate was exceeded only by Cote D’Ivoire (7.9 per cent) and Ethiopia (7.5 per cent). However, the rate declined to 5.6 per cent in the final quarter of 2016, significantly lower than the 8.0 per cent recorded during the same quarter in 2015.


The economy continued to be constrained by a weak business environment, record low levels of private sector credit growth, and weak development budget implementation, especially in the case of capital projects.


“Over the short to medium term, the growth outlook is favourable, with key risks being both mostly domestic and under the Government’s control. The growth rate is projected to reach 6.6 per cent in 2017, below the Government forecast of 7.1 per cent, mainly due to the under execution of the development budget and the weak business environment.


“In the medium term, the main risks relate to a further deterioration in business sentiment as a result of increased policy uncertainty and to a decline in the execution rate of the development budget. The most significant external risks relate to potential rebounds in oil prices, volatile global financial conditions, and a decline in demand from Tanzania’s main export partners.


“Near-term policy priorities should focus on improving the implementation of the budget and the business environment. Clearing verified government payment arrears to private sector contractors and suppliers; speeding up delinquent VAT refunds; and securing external financing to increase the execution of planned capital expenditures are required to boost the economy in the near term.


“Over the medium term, the Government should implement structural reforms to increase private investment, including reforms to reduce the costs to business of regulatory compliance and to improve infrastructure services and skills. These reforms are vital to achieve higher economic growth and to create a greater number of productive jobs.”