MPs clip KRA, Treasury powers to waive taxes

Cabinet Secretary of the National Treasury and Economic Planning Njuguna Ndung’u on June 19, 2024 at KISM Towers in Nairobi.

Photo credit: Billy Ogada | Nation Media Group

The Kenya Revenue Authority (KRA) will be required to publish waivers of taxes deemed uncollectible and seek parliamentary approval if changes introduced by the National Assembly Finance and Planning Committee in the Finance Bill are adopted.

Members of Parliament on the committee have rejected a proposal to hand powers to abandon taxes to the KRA commissioner-general in a move which has stopped the creation of an all-powerful tax czar.

The Finance Bill, 2024 had proposed to allow the KRA commissioner-general with the approval of Treasury to abandon unpaid taxes due to difficulties in recovering them or the costly nature of pursuing tax cheats.

But the National Assembly committee has rejected the proposal and instead seeks to have the KRA publish the waivers in the Kenya Gazette for stakeholders’ input and eventual waiver by Parliament.

The committee reckons that the tighter scrutiny of the waivers or abandonments is aimed at eliminating abuse of the process through collusion.

“The committee proposed additional checks and balances on the power of the Commissioner thus recommended that the provision be amended to require the Commissioner to publish in the Kenya Gazette on tax abandonment and submit it in the National Assembly for approval,” said the Finance Committee in the review of the Finance Bill.

The increased scrutiny comes against controversies with previous waivers involving big firms and top businessmen, culminating in court cases. The abandonment of taxes of multinational firms in the tail end of the Uhuru Kenyatta administration in 2022 also triggered a probe by the Senate.

The KRA is embroiled in one such a dispute with Kenya Breweries Limited (KBL) on taxes waived during the Kenyatta administration but later reversed. The taxman claims Sh8.2 billion from the brewer after the taxes were abandoned before the waiver was later revoked, resulting in a dispute that is now at the High Court.

The KRA was also in a dispute with London Distillers Limited, another brewer, after its rejection of an 80 percent abandonment of excise taxes or Sh423.3 million after the taxman claimed a notice supporting the waiver from the Treasury went against the Tax Procedures Act.

The High Court in September 2022 found that the waiver was illegal because it was initiated by the Treasury instead of the KRA, terming it a breach of the law. According to tax experts at EY, the ruling backed the importance of following due process in abandoning taxes and the repercussions of breaching the law.

“The ruling has made it clear the importance of taxpayers following procedures as set forth in the Tax Procedures Act (TPA) and other laws,” EY said in a notice.

Last year, the Finance Act, 2023 amended the Tax Procedures Act by deleting provisions allowing relief from pursuing unpaid tax because of doubt or difficulty in recovery of tax on the part of the commissioner-general.

The commissioner-general’s discretion to waive penalties and interest for taxpayers, including making recommendations to the Treasury for waivers, was also scrapped, leaving a legal gap that posed the waivers.

Previously, the commissioner-general, with the approval of the Treasury Cabinet Secretary, had powers to waive unpaid taxes in the wake of conditions that derailed recovery.

The Finance Bill, 2024 sought to eliminate the legal vacuum and return the clause that gave the KRA and the Treasury the powers to grant tax waivers.

Analysts at KMPG noted the legal gap had put pressure on the KRA boss to recover due taxes without regard to the costs or difficulties in collecting the duties.

“The amendment places pressure on the commissioner to take all necessary measures to recover tax owed. Taxpayers should brace themselves for aggressive tax collection measures by the revenue authority to recover unpaid taxes without abandonment or waiver as an option even in cases where it may be administratively challenging or costly to recover the tax,” KPMG said in a note.

Without the blessing of MPs, the taxman will still be pressed on making collections irrespective of difficulties in the recovery.

During public participation, submissions against the proposal to hand back powers to the Treasury and the KRA were made including by an entity called Modern Ways and Gideon Kimotho.

Mr Kimotho, for instance, observed that the Treasury Cabinet Secretary was likely to abuse the powers by making the decision to abandon taxes on his or her own terms.

His submission requested for a specific criterion to be used by the Cabinet Secretary and the KRA in determining that a tax debt is impossible to recover.

“Without the proposed amendments, the Cabinet Secretary is likely to decide on their own whim, which may result in mischief,” Mr Kimotho noted.

The abandonment of taxes has in the past been initiated by the KRA commissioner-general who determines the grounds for the waiver before referring any merited cases to the Treasury for approval.

In some instances, The Treasury has appeared to undercut the KRA boss by prompting the abandonment of taxes, as was the case in the London Distillers fallout.

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