KAM calls for review of 20pc deposit in tax rows


Kenya Association of Manufacturers (KAM) CEO Anthony Mwangi on February 28, 2023. PHOTO | DIANA NGILA | NMG

Manufacturers have decried the proposal that will compel businesses to deposit 20 percent of any disputed tax before hearing the cases, saying this will deny firms capital besides hindering access to justice.

The Kenya Association of Manufacturers (KAM) said businesses would suffer cash flow woes given the long periods that it takes to resolve tax disputes with the Kenya Revenue Authority (KRA).

The proposal is contained in the Finance Bill 2023 and intends to amend the Tax Procedures Act in a bid to make it expensive to appeal tax demands in the event of a dispute, making it easy for the taxman to collect billions of shillings.

The KRA has over the years vouched for deterrent measures such as the deposits amid concern that cases worth billions of shillings have been pending before the courts for years, hurting its ability to increase revenues.

“This (deposit of 20 percent) will negatively impact working capital and cash flow of most businesses since the money will be held in escrow without the capacity to earn any interest, given that tax disputes can take years to resolve,” the lobby for manufacturers says.

Firms are also grappling with cash-flow hitches due to billions of unpaid bills and the push compelling them to deposit 20 percent of any disputed tax will compound their woes and dim their ability to remain afloat besides expanding and making hirings.

While amounts that the KRA has been unable to collect over tax disputes remain undisclosed, the taxman is currently locked in long-running disputes with firms such as the Keroche Breweries in a dispute estimated at more than Sh8 billion, highlighting the impact of the high-profile dispute on tax collections.

The KAM adds that the requirement will impede access to justice, especially where huge amounts and small firms are involved, in turn discouraging businesses to appeal tax demands that they deem to be unfair.

The push for the deposit comes as KRA grapples with a mixed bag where it has lost cases which courts have ruled in favour of firms in disputed tax demands.

The Finance Bill 2023 will be debated in Parliament next month when lawmakers return, and if passed the requirement to deposit part of the contested tax amounts is set to squeeze businesses caught in disputes with the taxman.

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