Effects of Value Added Tax Refunds on Volume of Exports by the Kenyan Firms
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Date
2024-06
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Publisher
Kenyatta University
Abstract
Value Added Tax (VAT) is a consumption-based tax that is levied at each stage of product’s production and distribution. The long process of VAT refund and delays in refund payments arguably deprive export firms their working capital, which affects their operations, output and business profits. This may force export firms to alter their blend of production and/or reduce their export production. This study sought to look at how VAT refund affects the export performance of Kenyan firms. Specifically, the study sought to: estimate the effects of the payment of VAT refunds on export volume of firms in Kenya and establish the effects of time taken to pay the VAT refunds on export volume of firms in Kenya. The study utilised a non-experimental research design. The study employed unbalanced panel data consisting of 43 export firms observed at three different periods (2017, 2018 and 2019). The study was faced by missing data challenges thus firms included in the analysis are those that had data on dates of VAT refunds lodgments, approval and payments, VAT refund amounts; and at least three years’ observations on exports performance. The study employed Pooled Ordinary Least Square (OLS) model in the analysis, with the second empirical model including the sector dummies to control for the sector specific characteristics to achieve the first objective. The descriptive analysis which was used to address the second objective shows that the average refunds paid by the Kenya Revenue Authority (KRA) to the firms during the three-year period was Kshs 33,542,610.80, with a minimum value of Kshs 1,000,221.77 and a maximum value of Kshs 423,899,228.03. Additionally, the descriptive statistics show that on average, it took five and a half months to verify the refund claims during the period. The shortest time taken to verify VAT refund claims was one month while the longest it took was 14 months. However, it took only one month to pay the VAT refund claims after they were verified. This means that the payment for VAT refunds is well provided for thus the challenge is with the time taken to verify the refund claims. The empirical models showed that payment of VAT refunds has a positive relationship with export performance, meaning that efficient payment of VAT refund is likely to lead to an increase in export performance in Kenya. Moreover, the results from both models also showed that delay in verification of the VAT refunds negatively affects export performance of the Kenyan firms. The study recommends a review of the 100% VAT refunds verification requirement to reduce the refunds claims verification period and VAT data cleaning to improve on the VAT refunds data quality for analyses to inform management decision making and also risk profiling of VAT taxpayers.
Description
A Research Project Submitted to the Department of Econometrics & Statistics in the School of Business Economics and Tourism in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Economics (Econometrics) of Kenyatta University. June, 2024
Supervisor
Aflonia Mbuthia