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Economy

KRA loses power to raid, seize suspects’ property

Times Tower, the headquarters of the KRA, in Nairobi. FILE PHOTO | NMG
Times Tower, the headquarters of the KRA, in Nairobi. FILE PHOTO | NMG 

The Kenya Revenue Authority (KRA) has suffered yet another major blow after the High Court threw out sections of the law that allowed it to search and seize goods and documents from taxpayers believed to have evaded tax.

Justice George Odunga found that such actions would be in violation of Article 31 (b) of Constitution, which guarantees people’s ‘right not to have their possessions seized’.

The judge also declared unconstitutional sections of the law that sought to waive the rights of individuals or organisations that are bound by contractual duty of confidentiality.

Justice Odunga made the decision in a case that former Nairobi County Secretary Robert Ayisi had filed against the taxman’s quest to arrest him for allegedly failing to produce documents relating to legal fees paid to lawyer Tom Ojienda.

“I declare that the Sections 44 (1) and (2), 60(1) and (3) and 59(4) of Tax Procedures Act, 2015 are unconstitutional and are invalid and are accordingly null and void,” Justice Odunga said.

He directed deputy registrar of the High Court to serve the judgment on the office of the Attorney-General for further action.

Dignity

Mr Ayisi, who had claimed that his rights were violated when KRA officers briefly detained him, got further reprieve after the judge found that his right to be treated with dignity was violated.

The KRA has consequently been ordered to pay Mr Ayisi Sh2 million in damages for violations of his rights in addition to his legal costs.

Mr Ayisi moved to court in 2016 seeking to bar the KRA from arresting him or demanding that he produce the documents in relation to the legal fees that the city government paid Prof Ojienda.

The taxman had at the time said Prof Ojienda was under investigation for under-declaring his income for purposes of taxation. Mr Ayisi argued that the documents the KRA was demanding were carted away by Ethics and Anti-Corruption Commission (EACC) detectives and were yet to be returned to City Hall, rendering him unable to produce them.

In his petition Mr Ayisi had sought to have sections of the tax law declared unconstitutional. Justice Odunga’s decision means that the legal tussle that started as a small dispute with a single taxpayer and has been in court for close to two years, has ultimately spiralled into a fully blown legal crisis that has led to nullification of sections of the law.

The decision is contained in a ruling delivered in case filed against KRA by former Nairobi County Secretary Robert Ayisi who contested the decision by taxman to arrest him after he allegedly failed to produce documents relating to legal fees paid to lawyer Tom Ojienda.

The decision is contained in a ruling delivered in case filed against KRA by former Nairobi County Secretary Robert Ayisi who contested the decision by taxman to arrest him after he allegedly failed to produce documents relating to legal fees paid to lawyer Tom Ojienda. FILE PHOTO | BILLY MUTAI | NMG

The three sections declared unconstitutional are key anchors of the Tax Procedures Act that gave the KRA the power of search and seizure as well as admissibility of evidence.

Goods seizure

Section 44 (1) and (2) applies to seizure of goods whose owner the commissioner or authorised officer believes has not paid or will not pay value added tax or excise duty.

The section further empowers the KRA to seize excisable goods that have been moved, altered without permission of the commissioner and those goods whose owners make or produce false declaration or have unlawfully obtained excise duty refund.

Section 60(1) empowers the KRA to have full access to a premise, documents and data storage for the purpose of administering a tax law.

Section 60(3) empowers the taxman, while exercising the power of search, to extract copies of documents, seize any documents or storage device and require the owner of such documents or their representative to answer questions.

The decision therefore piles additional pressure on the KRA, which has suffered a series of legal setbacks in the past two months at the High Court.

The list of legal setbacks includes the quashing in March of regulations requiring commercial banks to pay capital gains tax on all land sold to recover bad loans, and the award of the tender for the supply of the Excisable Goods Management System (EGMS). 

Setbacks

The KRA has appealed these decisions and last week got a reprieve after the Court of Appeal suspended the decision that declared the levying of excise duty on bottled water, juices, soda, other non-alcoholic beverages and cosmetics unconstitutional.

The appellate court also suspended the decision that quashed the award of the EGMS tender pending the hearing and determination of the appeal.

In April, the taxman also lost a case against mobile phone-based solar products provider M-Kopa in a precedent-setting case that has defined his dealings with vendors of similar gadgets.

M-Kopa had moved to court seeking orders barring the taxman from charging value-added tax (VAT) on solar-powered digital television sets, a product targeting low-income consumers mainly in remote rural areas off the national power grid.

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