Business environment and investment climate are among the major factors for attracting and retaining business and investments in a country. There are several components of business environment and investment climate.
Broadly speaking, they include legal, policy and regulatory frameworks and infrastructure among others. In the fiscal space they include a number of tax issues including value-added tax (VAT) refunds. This article highlights VAT refund issues that constitute bad business environment and investment climate.
VAT refund is money paid back by the tax authority to entitled tax payers. This is done in a particular prescribed accounting period when tax liabilities are not exhausted by allowable deductions.
It is also done where a tax payer’s returns for prescribed accounting periods regularly result in excess credits. Application for refund is made where a person has overpaid a net amount payable for a tax period.
In Tanzania, the tax authority shall make decision on the application and inform the applicant on the amount to be refunded and the period upon which such a refund shall be made.
This has to be done within ninety days. VAT refund can be offset against other taxes, penalties and interest owing to Tanzania Revenue Authority.
Refund is supposed to be made within 30 days after the due date for its lodging or the date of receipt of the return, whichever is later. Where the refund is not made within this period, interest is supposed to be paid to the taxable person at the commercial bank lending rate determined by the central bank. This is what is supposed to be the case. Reality on the ground however is different in some cases.
Issues of concern
Tax payers entitled for VAT refund have number of issues of concern. Related to VAT refund delay is the issue of the 15 percent additional up-front payment done on industrial sugar.
Among the key issue is delay in payment of the refund. This translates to capital and cash flow being tied up instead of being used to finance businesses. It also translates to extra transaction costs by ways of resources devoted to dealing with tax refund follow up. Related to this is opportunity cost of having capital tied up in the government coffers.
Even if interest rate was to be paid, it may not make up for lost opportunities. Delays have been reported to be for up to two to three years. The length of time taken for tax refund claims differ by sectors.
It ranges from one to three years in sectors as construction, mining, industry, trade in goods and services, and agriculture. In monetary terms the sum can be in billions of shillings.