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Tax experts ask MPs to reject plan to deposit half of disputed bill

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Summary

  • The KRA argues cases worth billions of shillings have been pending before the courts for years, hurting revenue collection.
  • The taxpayers will be refunded the deposit within 30 days if the cases are ruled in their favour.
  • The Bill seeks to amend the Tax Procedures Act to encourage out-of-court settlements amid complaints that the KRA is unable to collect billions of shillings pending the conclusion of suits that take years.

Tax experts have asked Parliament to reject a proposal requiring firms and individuals battling with the Kenya Revenue Authority (KRA) in courts over tax demands to deposit 50 percent of the disputed amount in a Central Bank of Kenya (CBK) account.

PriceWaterhouseCoopers, KPMG, the Institute of Certified Public Accountants of Kenya, the Kenya Bankers Association (KBA) and the Kenya Association of Manufacturers (KAM) told Parliament that the proposal is subject to abuse by the KRA, is punitive, and will scare away investors.

The Treasury, through the Finance Bill, 2022, has introduced a requirement for a taxpayer who wishes to appeal against the decision by the Tax Appeals Tribunal (TATs) to deposit half of the disputed tax with the CBK.

Currently, courts determine whether the KRA’s demands for security are justifiable and then set the amount to be given either as a deposit or bank guarantee.

The KRA argues cases worth billions of shillings have been pending before the courts for years, hurting revenue collection.

The taxpayers will be refunded the deposit within 30 days if the cases are ruled in their favour.

The professionals asked Parliament to delete the proposal and allow the courts to determine the amount of deposit an individual or firm should pay.

The Bill seeks to amend the Tax Procedures Act to encourage out-of-court settlements amid complaints that the KRA is unable to collect billions of shillings pending the conclusion of suits that take years.

The tax professionals told the National Assembly’s Finance and National Planning Committee that whereas the Bill requires the taxpayer to deposit 50 percent of the tax in dispute before an appeal at the High Court, there is no requirement on the KRA to make similar deposit when they lose and move to the High court for appeal.

The stakeholders asked MPs to delete Section 30 of the Bill, arguing the 50 percent deposit requirement will create cash flow challenges for taxpayers.

“The taxman will give us crazy claims because they want to squeeze you to raise revenues to plug revenue collection shortfall,” Mucai Kunyiha, the Kenya Manufacturers Association (KAM) chairperson told MPs.

“We propose that Section 30 of the Bill be deleted. Let us give the judge the opportunity to decide the amount of deposit. This happens when you are facing criminal cases when people seek bail.”

PWC associate director Edna Gitachu said the 50 percent deposit requirement before lodging a suit in court will affect working capital, reduce expenditure and investment.

Absurd assessments

“Payment of 50 percent of disputed tax deprives the taxpayer the right of property before trial. This is because of lengthy judicial process. Deleting it will protect taxpayers from absurd tax assessments when KRA fails to meet revenue collecton targets,” Olive Akora, Partner Tax & Regulatory Services at KPMG.

ICPAK’s Erustus Omolo said the 50 percent deposit requirement will not benefit Kenyans because the money will be locked up under special CBK account and the money will be owned by anyone.

“This clause should be struck off. One must be presumed innocent until proven guilty. If I pay 50 percent, am I 50 percent guilty?” Mr Omolo said.

The committee chaired by Gladys Wanga met various stakeholders who made submissions on the Bill.

“I want to agree with the position taken by the Institute of Certified Public Accounts of Kenya. This will visit mayhem on Kenyans as KRA will be at an advantage over taxpayers,” Luanda MP Christopher Omulele said.

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