The Kenya Revenue Authority (KRA) wants the High Court to suspend the disbursement of car allowances to members of the county assemblies, pending the determination of a petition on whether the payment should be taxed.
The taxman says in an urgent application that the county assemblies will proceed and disburse the amounts together monthly emoluments to the MCAs, without taxing the money.
And being an individual tax on the employees, the KRA says recovering the tax will be difficult.
The KRA filed the application following a petition by the County Assemblies Forum (CAF) and obtained orders stopping the KRA from imposing taxes on motor vehicle reimbursement, as required by sections 3 and 5 of Income Tax Act.
Justice Joseph Sergon suspended the tax on May 17 and directed the CAF, KRA and the Controller of Budget to appear for directions on May 30.
Through lawyer George Gaya, KRA says the MCAs failed to disclose to the court that the reimbursement benefit is actually a benefit received in the course of employment and properly captured as a benefit in the gazette notice.
“That with the conservatory orders currently in place, the county assemblies will proceed and disburse the amounts gross of taxes and this being an individual tax on employees, the 1st respondent will have no way of recovering the same,” the KRA said in the application.
The Salaries and Remuneration Commission had in a gazette notice dated July 27, 2022, said the MCAs would be entitled to motor vehicle reimbursement based on the distance covered.
The notice said deputy speakers and MCAs shall be reimbursed a claimable mileage allowance of one return journey per week from the respective county assembly office to the respective ward office at the rate of Sh77.35 per kilometre using a car of engine capacity not exceeding 1800cc.
Mr Gaya said the MCAs misled the court that the motor vehicle reimbursement is not a taxable benefit.
He further said the court was misled that section 5(2)(a) (iii) does not provide for taxation of the benefit while the same covers all the benefits gained in the course of employment or services rendered and the motor vehicle reimbursement benefit is covered.
The KRA further submitted that parties engaged in the process leading to the demand of the taxes and the MCAs were informed on occasions on the correct tax treatment.
“If the amounts are disbursed gross of tax it will be difficult to recover and the county assemblies will also face difficulty to account for the same, which will be a violation of section 37 of the Income Tax Act,” Mr Gaya said.
The court documents stated that the MCAs are entitled to up to a Sh2 million car grant, for which they are required to repay before the end of their term in office, while the motor vehicle is a benefit for which they are not repaid for anything incurred but a benefit they accrue.
According to KRA, the car grant, which is subject to the demand of the county assemblies is distinct from the car loan, for which no demand has been made.