Members of Parliament have suffered a blow after their plea to overturn the tax demand of Sh1 billion for the car grants that the lawmakers get every term.
A tribunal has ruled that the Kenya Revenue Authority (KRA) has the right to demand Sh2.5 million from each of the 416 lawmakers -- 349 in the National Assembly and 67 in the Senate -- as 30 percent income tax on the car grant.
MPs and senators are provided with a car grant of up to Sh7.5 million for purchase of a car of engine capacity not exceeding 3000cc to undertake their official duties.
The lawmakers had claimed that the car grant was tax-free because it was not an income.
They argued that the money is meant to enable them to travel and meet with their constituents and represent their interests in Nairobi by attending House and committee sittings, in line with the role of Parliament under Articles 1(2) and Article 94 of the Constitution.
But the tax appeals tribunal dismissed the argument, saying that the car grants, technically called motor vehicle reimbursements, are benefits from employment that are subject to tax in line with section 3(2) of the Income Tax Act (ITA).
“From the above provision of the law read together with Section 3(2)(a)(ii) ITA it is clear that the Motor Vehicle Reimbursements is subject to tax under ITA,” the tribunal ruled.
The tribunal reckons that MPs like all employers must pay tax on benefits issued to employers, such as payment of free gym membership.
For instance, if an employer pays gym membership worth Sh100, 000 on behalf of their employees, the staff are liable to pay tax of Sh30,000 or 30 percent of the benefit.
The tribunal chaired by Eric Nyongesa Wafula noted that the MPs register the motor vehicles in their personal names and that they further retain the vehicles after the expiry of the parliamentary term, with the option of selling them and keeping the proceeds.
“This in itself amounts to a direct gain to each of the State officers,” said the tribunal.
The Parliamentary Service Commission (PSC) has the option of seeking to overturn the ruling of the tribunal at the High Court.
The dispute was triggered by letters from the KRA to the clerks of the Senate and the National Assembly on December 7, 2022 demanding settlement of income tax on the motor vehicle reimbursements equivalent to Sh1.45 billion.
The KRA claimed Sh168.4 million from 67 senators and Sh877.4 million from 349 members of the National Assembly.
The amount included penalties and interest of Sh47.1 million and Sh56.55 million respectively.
The PSC objected to the demands arguing that the money was meant to facilitate the legislators to discharge their parliamentary duties.
The commission faulted the KRA, arguing that the taxman had erroneously interpreted Section 5 (2) (a)(ii) of the ITA, which provides that reimbursements attached to income does not amount to a gain or profit.
The MPs submitted that the Salaries and Remuneration Commission (SRC) had stated in a circular that the sole purpose of the motor vehicle reimbursement is “to undertake official duties as a Member of Parliament” and any personal or private consequences are purely incidental.
They maintained that the car grant facilitates their presence in their constituencies and attendance in Parliament in Nairobi.
In response, the KRA argued that the motor vehicle reimbursement was not like mileage claims, which are intended to indemnify MPs for travel to their constituency offices and therefore, not taxable.
The KRA insisted that the car grant is a cash benefit which the MPs, the Speakers and the Deputy Speakers get in the course of their employment.
According to the taxman, any payment which is received by any employee of whichever class, in the course of employment or services rendered is income that attracts tax.
The PSC said the motor vehicle is used for two purposes--personal and official use-- and is therefore not wholly and exclusively used in production of income.
“The tribunal in the circumstances finds that the motor vehicle reimbursement to the Members of Parliament are gains from employment that are subject to tax as provided for under Section 3(2) of the Income Tax Act,” said the tribunal.
