President William Ruto has moved to heavily arm the Kenya Revenue Authority (KRA) ahead of what is shaping up to be a year where employees and firms will be taxed the most, with little room to appeal despite the soft stance promises on taxation he made when looking for votes last year.
The proposals in the 2023 Finance Bill, some of which were rejected by the previous parliaments, paint a picture of a government that is keen on giving its revenue authority stronger teeth to bite while making it expensive to appeal tax demands in the event of a dispute.
The amendments to the Tax Tribunal Act and the Tax Procedures Act (TPA) will also grant more power to the KRA commissioner-general to go after tax cheats while taking away its powers to abandon taxes.
For instance, the Bill proposes to repeal provisions in the TPA which allow relief because of doubt or difficulty in the recovery of tax on the part of KRA.
“Taxpayers should brace themselves for a more aggressive revenue authority because they (the KRA) will have to do all that is possible even where its demand is impossible to recover the tax,” said KPMG East Africa Regulatory Lead, Tax and Regulatory Services Lydia Abala.
At the same time, the proposed changes obligate taxpayers to deposit with the commissioner 20 percent of the tax in dispute or security equivalent to 20 percent of the disputed tax before the filing of the appeal to the High Court.
Ironically, KRA has not been spared from this condition should it appeal against the decision of the tax tribunal.
Additional proposed changes seek to widen the scope of the commissioner-general to amend tax assessments from current rules where amendments are limited to the original assessment.
Similarly, the Finance Bill has proposed to reduce the window for the remittance of withheld VAT from the 20th of the month following the taxation period to three days after the deduction.
Should the Bill sail through as proposed, the KRA will also have the leeway to appoint real estate agents as tax withholding agents.
The KRA could also require firms in certain sectors to remit excise taxes daily, as has been the case with players in the betting industry.
From the proposal to abolish relief because of doubt or difficulty in recovery of tax, experts predict a more unforgiving KRA as the provision unleashes more claws in pursuit of arrears.
The changes if implemented will see a fall in tax expenditures relating to the abandonment of taxes.
While the Treasury does not explicitly value the cost of abandoned taxes, total tax waivers that makeup part of tax expenditures by the government stood at Sh316 billion in 2021, rising from Sh267.1 billion in 2020.
This represents an estimated 2.61 percent of GDP from 2.49 percent a year earlier.
The move to push KRA to recover due taxes at all costs is nevertheless a Catch-22 situation given the challenge of recovering arrears deemed unrecoverable.
“The deletion of this provision will leave KRA and taxpayers with no avenue for relief where there is great difficulty in recovery of taxes,” noted tax analysts at PwC.
“KRA will be forced to undertake burdensome enforcement measures that may be disproportionate to the tax that they are seeking to recover.”
The taxman has protracted tax disputes with firms with claims going as far back as decades that have the potential for treatment under current abandonment provisions.
For instance, the taxman recently made a Sh8.1 billion tax demand to Kenya Breweries Limited in a claim that had been waived two years ago through negotiations.
The demand relates to excise duty and value-added tax covering the period from June 2015 to March 2017.
The combined proposals are expected to hit businesses that are smarting from the recent suspension of tax refunds, pending the audit and assessment of tax relief processes and procedures.
During the presidential vote campaigns, Dr Ruto pointed to a softer revenue administrator as he rebuked the previous regime’s stance on taxation.