Concerns including delays in refunding extra value added tax (VAT) to traders should be addressed in the new draft law establishing value added tax, the Private Sector Federation (PSF) has proposed.

The bill is awaiting adoption by Parliament, after the Committee on National Budget and Patrimony completed its scrutiny on July 5.

It was tabled before the Lower Chamber of Parliament on June 9, by the Ministry of Finance and Economic Planning.

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According to Article 26 of the bill, which talks about VAT refund, if the input tax exceeds the output tax, the surplus tax is refunded to the taxpayer.

Input VAT is the amount of tax that a business pays on the inputs or purchases it uses to produce goods or provide services. The amount can be used to offset VAT liabilities on sales or output VAT, which is charged on the goods and services that a business sells to its customers.

The input VAT refundable is refunded within 30 days calculated from the day following the day of declaration, as per the bill.

However, if the carrying out of a comprehensive audit prior to refund is considered necessary, – with a view to verify the accuracy of claimed amount – the period is not considered, it added. In that case, the input tax is refunded within 30 days calculated from the day following the day of issuing the audit report.

The surplus value added tax is refunded upon recognising that the corresponding value added tax on purchased goods and services is paid to the tax administration. This implies that a businessperson who has declared and paid the due tax would not get reimbursement as long as all other business people have not yet paid the due tax amount.

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The director of trade and advocacy at PSF, Joseph Mutabazi, said that traders have, for a long time, been decrying VAT refund delays after declaring tax, pointing out that the problem should be addressed in the bill.

He indicated that audits by the tax administration entity that the VAT refund claims in question are subjected to in case of suspicion, should be expedited to address a situation where it might take too long, which can inconvenience the trade in question.

Also, he said, the VAT refund to traders who have declared and paid the due tax should not wait until others have met tax obligations, pointing out that they should not be held accountable for others’ faults.

"Ideally, what we want is that there should not be VAT refund delays,” Mutabazi said, suggesting that in case there are valid reasons that hinder direct refund, it should be made within three months.

ALSO READ: RRA owes Rwf30b in VAT refunds

The Committee Chairperson, MP Omar Munyaneza, said that there should be a provision in the law that sets the deadline for VAT refunds for traders who deserve it.

He added that RRA should assume the tax obligation enforcement responsibility to ensure that the traders who did not remit input tax comply with the law, to avoid refund delays.

Data from RRA indicates that the tax body retains 12 per cent of the VAT collected so that it is used for refunds.

As of January 11, 2023, RRA owed over Rwf30 billion to be reimbursed to business people.