Why Kenyan men should worry over their wives’ tax bills

Married men, whose wives have not been paying income tax, run the risk of falling foul of the Kenyan law due to an antiquated regulation which places the responsibility of settling a woman’s tax liabilities on the husband unless she formally decides to do so.

Tax experts say the provision in Section 45 of the Income Tax Act, which dates back to the 1970s, is a relic of the past era when women were legally recognised as dependants of their husbands and is one of those earmarked for repeal during this year’s review of the tax law.

Viva Africa, a legal and tax consultancy, recently sent shivers down the spine of thousands of married men with the release of an advisory alerting them of the legal exposure.

Alice Owuor, the Kenya Revenue Authority (KRA) Commissioner, Domestic Taxes, described the provision as antiquated and inappropriate going by the present realities.

“It presupposes that the income of a married woman living with her husband is the income of the husband for purposes of ascertaining his total income, and is therefore assessed on that basis, and the tax thereon charged,” Ms Owuor said.

This means that the tax liability of a married woman (expressly living with her husband) is borne by the husband unless the woman opts to file a separate return.

Ms Owuor added that it is only in the case where the woman registers to file her own returns that her earnings shall not be deemed to be the income of the husband.

The decision of a wife to file her own returns is, however, optional, leaving men at the mercy of their spouses.

A wife’s tax liability, however, does not apply if the woman is not living with her husband, and is separated under a court order, a written agreement or are separated in such circumstances that the separation is likely to be permanent.

Income tax in Kenya covers a broad spectrum of earnings, including those from business, employment (including benefits), rent and investment. A man whose wife defaults on any of these is liable.

“Where any amount of tax remains unpaid after the due date, a penalty of 20 per cent shall immediately become due and payable,” the Income Tax Act says.

Ms Owuor did not, however, indicate whether the KRA has been enforcing this law nor the existence in the tax defaulters’ list of men who are facing tax liabilities for failing to account for their wives’ income.

Viva Africa Consulting said in the brief to its clients that where a married woman is employed, the risk is minimal as the onus to submit her taxes lies with her employer.

READ: Tough times ahead as KRA misses half-year revenue target

The problem, however, arises where the married woman is self-employed and/or earning professional income and does not pay taxes.

The Income Tax Act commenced in January 1, 1974 and has since been amended hundreds of times, creating a patchwork of legislation that has failed to keep up with changing times, including recognising women as financially independent of their husbands.

“The reality today is very different as women are strongly empowered and more financially independent than ever. The tax legislation in place has not been amended to reflect these societal changes,” Viva says.

“Recent developments have seen more and more married women declare and file their tax returns individually.  However, married women who remain non-compliant from a tax perspective run the risk of exposing their husbands to any tax liabilities arising from such instances of non-compliance.”

Treasury secretary Henry Rotich last month said work was underway on a draft Income Tax Bill that will be submitted to Parliament together with the Budget in June to deal with difficulties arising from such antiquated laws.

Ms Owuor said the KRA was looking forward to a review of the Act that will modernise the law and remove segments that complicate compliance.

“Like other interested stakeholders, the KRA will review and propose appropriate tax policy amendments as the Income Tax Act is being reviewed,” she added.

While the assumption would be that the review would see each spouse file returns independently, Viva says that there is a second option which promotes equality.

“More radical thinkers have toyed with the idea of amending the law to promote equality by having spouses held jointly liable on tax matters,” the firm says.

The impending review of the Income Tax Act is also linked to the government’s plan to raise more revenue.

Income tax has underperformed in the current fiscal year with the Treasury projecting that the revenue stream will miss the target by Sh37.5 billion. It follows the review of the Value Added Tax Act in 2013 and Excise Duty Act and Tax Procedures Act last year.

“These reforms are intended to lock in predictability and enhance compliance with the tax system and ensure stability in tax revenue flows,” the Treasury said in the 2016 Budget Policy Statement.