• “Charging of excise duty is contrary to the Global Fund Grant Regulations, 2014,” Gathungu said in her review of the NACC books for the year ending June 2021.
• She also flagged unused Sh159 million meant for response supplies.
Image: WILFRED NYANGARESI
An audit has flagged a tax imposed on Global Fund grant for HIV-Aids response supplies, putting Kenya Revenue Authority on the spot.
Auditor General Nancy Gathungu says KRA wrongfully charged the Global Fund Sh229,033 in excise duty from a bank transaction of Sh307 million.
The transaction attracted bank charges of Sh1.8 million upon which the taxman imposed the levy on the transaction by National Aids Control Council.
“Charging of excise duty is contrary to the Global Fund Grant Regulations, 2014,” Gathungu said in her review of the NACC books for the year ending June 2021.
The regulations provide that for each programme, grant funds are made available by the Global Fund for the purposes of implementing respective programme activities.
It stipulates that purchase or import of any goods or services using the grant funds shall be exempt from relevant taxation applicable in the host country.
The exemptions include, and are not limited to, customs duties, import duties, taxes, or fiscal charges of equal effect levied on health products imported into the host country.
No Value Added Tax should be levied or imposed on the purchase of goods and services using grant funds.
The rule applies to items acquired under the grant agreement or any related supplier contract, or any related sub-recipient of the goods and services.
“To this extent, the management was in breach of the Global Fund Regulations, 2014,” Gathungu said in the report tabled in Parliament.
Kenya and the US were in January 2021 embroiled in a tax row that saw life-saving HIV and TB medicines worth over Sh1 billion retained at the Mombasa Port for months.
The drugs were donated by the US government through USAID and were not taken to county hospitals until months later owing to the taxation standoff.
The government had billed a privately-owned US firm Chemonics, Sh90 million for the imports it had transacted on behalf of USAID.
USAID and Kenya government had also disagreed on the mode of distribution where the latter preferred Kemsa as the agent, a decision the US opposed following the PPE scandal at the supplies agency.
Separately, NACC is on the spot for letting millions of shillings lie unused when Kenyans could have been in dire need of supplies for HIV response.
The council has been reprimanded for failing to utilise Sh159 million (34 per cent of the budget) during the financial year to June 2021 from its budget of Sh466 million.
The auditor general said in the ensuing circumstances, the country may not realise some of the set targets in the fight against HIV-Aids epidemic.
“Failure to achieve the set targets may negatively impact on the strategic goals of reduction of HIV infections by 75 per cent and reduction of Aids-related mortality by 25 per cent.
"Also the reduction of stigma and discrimination by 50 per cent, and increase in domestic financing of HIV response to 50 per cent,” Gathungu said.
NACC has had challenges with absorption of funds amid revelations it did not utilise Sh79 million in a similar grant which ended on December 31, 2017.
The unutilised funds were carried over into the new grant in line with the Global Fund financial reporting guidelines, NACC chiefs said amid further revelation some Sh260 million was carried forward in 2019-20.
“Absorption of funds was affected by Covid-19 containment measures that restricted movement and gatherings,” the council said in the report accompanying the financial statements.
Kenya has been tasked to work out a sustainability strategy in the fight against HIV, tough stances largely attributed to some of the infractions by the implementing agencies.
Pepfar has since reduced the funding to the government by Sh2 billion from the Sh41 billion it provided in the last funding period.
(Edited by Bilha Makokha)