Economy

City Hall blocks KRA’s bid to attach Treasury funds

kra

Kenya Revenue Authority (KRA) commissioner-general John Njiraini. file photo | NMG

City Hall has opened a fresh legal battle with the Kenya Revenue Authority (KRA) after the taxman issued a freeze order on all funds that Nairobi City County is to receive from the Treasury seeking to recover Sh4.7 billion in unpaid tax revenues.

The county government has moved to court disputing the amount of tax due, and has challenged the KRA’s power to freeze funds from the Treasury, arguing that only Parliament has the authority to do so.

“KRA acted illegally by issuing the impugned agency notice since the Finance minister has not sought and obtained the approval of Parliament before stopping the transfer of funds to Nairobi County as required by the Public Finance Management Act, 2012,” City Hall says in court papers.

High Court judge Roselyn Aburili has issued a temporary order suspending the agency notice that the KRA issued to the Treasury pending hearing of the suit.

The KRA, however, insists that it has the authority to recover unpaid taxes, and that City Hall owes Sh4.7 billion in withholding tax, withholding VAT and PAYE taxes it has deducted from employees’ salaries but not remitted.

The taxman had in December issued agency notices to Equity Bank #ticker:EQTY, Co-operative Bank #ticker:COOP, Central Bank of Kenya and revenue collector Webtribe Limited, which all hold funds on behalf of the county government. But City Hall obtained a temporary order suspending the notices, forcing the taxman to look for an alternative route.

City Hall now claims that the national government owes it Sh140 billion in unpaid land rates and for land parcels it has alienated for the Department of Defence, hence the KRA should have first considered a debt swap.

The taxman says City Hall had promised to pay Sh1.2 billion before the end of February but reneged on the deal, prompting it to take enforcement action. The KRA adds that Nairobi has not denied owing it Sh4.7 billion in taxes.

City Hall says freezing funds from the Treasury will paralyse its operations and interfere with the provision of services to Nairobi residents.

The county government says it receives approximately Sh1 billion monthly from the Treasury, and that most of it is channelled to payment of salaries.

The KRA, however, says that City Hall failed to disclose to the court that it has on numerous occasions agreed to instalment payment plans but still failed to pay up.

Justice Aburili will on May 16 rule on whether the temporary orders suspending the KRA’s agency notices shall be in place until the suit is determined fully.