EAC LOSING BILLIONS IN VAT REFUND DELAYS

 

The East African Community (EAC) risks losing billions of shillings in Value Added Tax (VAT) refunds from the partner states and donor funds.

 

Until last month (December), the

regional organization was owed a whooping $2,5589,770 as outstanding VAT claim.

That is composed of $1.9million charged on the six partner states' contributions and $647,308 slapped on the donor funds.

The outstanding VAT refunds  are supposed to be paid to the EAC Secretariat from the respective revenue authorities of the  partner states.

However, according to a report of the Audited Accounts of the EAC for the year ending June 30th, 2019 the funds have not been received.

The 204 page report was tabled before the East African Legislative Assembly (Eala) during the House sitting here  last month (December 2021).

The VAT refund flaw emerged as the Accounts Committee reviewed the financial states of the EAC organs and institutions for the 2018/19 financial year.

During the period (2018/19 fiscal year), the Community had a budget of $111.7million. However, the actual expenditure was $64.5million or 58 percent of the total budget.

The report observed that the Community risked not getting even a single cent from the VAT claims as the time frame has been exceeded.

It cited the claims worth $1.5million - or 58 percent of the total claims - that have been outstanding for the past three years. 

This means the claims have been time-barred as they have exceeded the three year period  "within which to claim a refund".

The balance of $1million - 42 percent of total claims - the report revealed, have been outstanding for 35 months or less without refunds.

Members of the Committee noted that despite dialogue and engaging the partner states on the challenge, the  claims have simply not been refunded.

Ideally, VAT claims are made to the partner states through the ministries responsible for EAC and Foreign Affairs.

For the EAC, the VAT is taxed on its dozen- plus organs and institutions of the Community for taxable goods and services.

The entities would subsequently claim VAT refunds from the revenue authorities in their respective states.

This makes the outstanding tax claims to be different from one EAC partner state to another and higher in countries hosting more regional bodies.

Tax exemption is required under Article 4 (d) of the EAC Headquarters Agreement with host countries for its autonomous bodies spread across the region. 

But when taxes are paid, the same regional bodies have to claim refunds from the revenue authorities in the countries hosting them.

The report was emphatic that none of the EAC organs and institutions have recovered accumulated VAT refunds during the fiscal year in question.

This not only led to forfeiture of activities that could have been undertaken using "these VAT resources" but had adverse effect on EAC liquidity status.

Delayed or non-settlement of the refund also means the resource scarce regional  organization has to meet the cost of routine operations. 

The situation appears to sour the relations between the EAC and the donors who contribute a significant amount of funds for the EAC annual budget. 

The donor partners consider tax as ineligible expenses. It was recommended that the matter be forwarded to the EAC Council of Ministers for action.