Former Treasury Cabinet secretary Njuguna Ndung’u turned down a tax waiver request by the Athi Water Works Development Agency, adding a twist to a row that saw the Kenya Revenue Authority (KRA) freeze the agency’s bank accounts.
In August 2023, Prof Njuguna, who has since been replaced by John Mbadi, declined Athi Water’s request for the waiver of Sh668,718,171.30 in unpaid taxes.
The tax demand is for withholding tax on payment made by Athi to a Belgian company for the construction of the Ithanga Water Project in Murang’a County, as shown by disclosures by the Tax Appeal Tribunal.
While rejecting the request for the tax waiver, Prof Njuguna pointed to the repeal of the section of the law that had given his predecessors such powers.
This paved the way for the KRA to freeze Athi Water’s bank accounts last December, especially after the State agency delayed responding to the taxman’s objection notice.
“That despite the efforts made in resolving this matter amicably with the Respondent (KRA), which led to the Applicant (Athi Water) paying Sh81,000,000 so far, which was way above the correct tax before penalties and interest of Sh39,951,810.28, the respondent (KRA) has continually issued tax demands and agency notices which have led to freezing of the agency’s accounts from time to time,” the Tax Appeal Tribunal explained Athi’s position.
“That the applicant’s accounts hold donor money and Government of Kenya Exchequer releases, which are meant to execute projects in line with its mandate of providing water which is a social good. That the applicant is therefore unable to execute its mandate as constitutionally provided,” added the five-bench tribunal, which rejected Athi Water’s request for an extension to allow it to appeal against the KRA’s demand.
Athi is primarily responsible for developing, maintaining, and managing water and sewerage infrastructure in the counties of Nairobi, Kiambu, and Murang’a, ensuring clean water and sanitation services to residents in these areas.
Rather than responding to the KRA, Athi opted to pursue the path of tax waiver, arguing that the contractor for the Sh3 billion water project was a resident who should pay a withholding tax of three percent as opposed to 20 percent charged to foreign contractors.
Athi Water, through its parent ministry of water, made the request for abandonment on July 18, 2022, two months after the KRA had slapped it with the tax demand.
The response from the National Treasury came one year and three months later when the law allowing for abandonment by the Cabinet secretary had already changed.
Athi also took its case before the Office of the Attorney General for mediation following the directive issued by the Head of Public Service through the Circular dated November 11, 2019.
Concurrent to the request for the tax waiver, Athi Water was expected to respond to the taxman's tax demand within 30 days as is required by law, argued the KRA.
However, Athi is said to have filed its notice of appeal 33 months later on January 22, 2025, after the taxman placed agency notices on its bank accounts.
To get an extension for filing its appeal, the tribunal noted that Athi should have met three conditions: absence from Kenya, sickness, or other reasonable cause. But it did not.
"In the circumstances, the Tribunal finds that the Applicant’s delay was inordinate and that further, the Applicant did not explain any reasonable cause for the delay that would enable the Tribunal to vindicate its right to appeal against the Objection Decision by the Respondent," said the tribunal.
