Tax experts have raised constitutional questions over a proposal requiring firms and individuals to deposit half of tax demands by the Kenya Revenue Authority (KRA) before escalating the dispute from the appeals tribunal to the High Court.
Treasury Cabinet Secretary Ukur Yatani said the proposed changes were aimed at encouraging out-of-court settlements for faster resolution of cases in a bid to unlock billions of shillings tied in legal processes for years.
Tax experts have raised constitutional questions over a proposal requiring firms and individuals to deposit half of tax demands by the Kenya Revenue Authority (KRA) before escalating the dispute from the appeals tribunal to the High Court.
They argue that passing the proposed changes to the Tax Appeals Tribunal Act will amount to denying taxpayers unable to raise 50 percent of the disputed taxes the right of appeal, contrary to Section 50 of the Constitution and also usurp the powers of the High Court.
Currently, courts determine whether KRA’s demands for security are justifiable and then set the cash to be used as a deposit or bank guarantee.
Treasury Cabinet Secretary Ukur Yatani said the proposed changes were aimed at encouraging out-of-court settlements for faster resolution of cases in a bid to unlock billions of shillings tied in legal processes for years.
“If I don’t have that amount of money, it means I cannot even appeal and, under the law, I have to appeal within 30 days,” Robert Waruiru, an associate director for KPMG Advisory Services, told a post-budget forum on Friday.
“So if I don’t appeal within 30 days, I no longer have that right of appeal, and from a constitutional perspective, that’s a very bad provision.”
If successful, Kenya will be joining other countries on the continent such as Tanzania (where there’s no option of objection to the High court) and Ghana where the deposit is 30 percent of assessed taxes before appealing.
A similar provision — which can have significant cash flow challenge — was in July 2020 ruled unconstitutional in Uganda after a 10-year court battle.
KRA’s Deputy Commissioner for corporate policy Maurice Oray, who is also vice-chairman of the budget committee at the Treasury, defended the proposal, saying it was a result of analysis of trends in tax arbitration processes that drag as long as 20 years and was beneficial to government and taxpayers.
“From the surface, it looks a bit punitive, but let us look deeper into the issue. At the end of it, the interest (on disputed taxes) is capped and so the government cannot collect more than 100 percent what’s payable,” Mr Oray said.
“On the side of the taxpayer, there are cases where the courts have determined that taxes are even more than three times the turnover of the taxpayer… which can lead to bankruptcy or collapse of the company. This law will actually ease the burden to the taxpayer where the tax level is so high.”
The Times Tower-led Tax Dispute Resolution (ADR) mechanism, which must be concluded within 90 days, is the first layer of resolving disputes arising from tax audits before they are escalated to the Tax Appeals Tribunal and onto the courts.
Kenya has in the past had similar provisions under the VAT Act as well as Customs and Excise Act where the deposit was 30 percent of disputed taxes.
Taxpayers will be refunded the deposit within 30 days if the cases are ruled in their favour.
“Assuming this proposal passes, what would stop a taxpayer from getting back his money in 72 hours, for example, because it is there an escrow account as security?” Waruiru posed.
