The Treasury is yet to signal how the companies, which act as the taxman’s agents in collecting the taxes, should treat the funds following the court ruling.
Tax experts said some of the revenue is likely to remain in the hands of the companies should the court decide in favour of activist Okiya Omtatah, who has challenged levying of the new taxes before Parliament passes the Finance Bill.
Banks have also obtained orders suspending collection of a 0.05 per cent “Robin Hood” tax on cash transfers of Sh500,000 and above.
Commercial banks, mobile phone operators and oil marketers are holding billions of shillings they collected as excise tax in the first 19 days of July before the High Court suspended the levies pending Parliament’s passing of the Finance Bill 2018.
The Treasury is yet to signal how the companies, which act as the taxman’s agents in collecting the taxes, should treat the funds following the court ruling.
Tax experts said some of the revenue is likely to remain in the hands of the companies should the court decide in favour of activist Okiya Omtatah, who has challenged levying of the new taxes before Parliament passes the Finance Bill.
Banks have also obtained orders suspending collection of a 0.05 per cent “Robin Hood” tax on cash transfers of Sh500,000 and above.
Treasury secretary Henry Rotich last month invoked the Provisional Collection of Taxes and Duties Act to bring into force parts of the Finance Bill touching on taxes and duties.
The move effectively allowed the Kenya Revenue Authority (KRA) to start collecting the taxes before Parliament could officially pass or reject them. Job Kabochi, a partner and director at consulting firm PriceWaterhouseCoopers (PwC), said the suspension of the taxes has introduced an administrative complication for companies already holding the cash should they be required to return it to customers.
“A lot of these taxes — VAT, excise and withholding taxes — have not fallen due for payment to the government given that July payments are due by August 20,” Mr Kabochi said, adding that it is a messy situation that requires some form of guidance on how to deal with it. “We are advising people to comply with the court order but with caution that these taxes could crystallise down the road should the ruling be in favour of the Treasury,” he said.
The Finance Bill raised the excise on mobile money transaction fees from 10 per cent to 12 per cent, while the excise on kerosene rose from Sh7.21 per litre to Sh10.31.Kenyans make about Sh10 billion mobile phone transactions per day, based on the latest data available from the Central Bank of Kenya.
M-Pesa fees range from Sh10 to Sh309 per transaction, depending on amount and type of transaction — meaning telecoms operators collected millions of shillings per day in excise taxes before they were stopped.
Tax experts said refunding the money to customers in the event the court rules against the KRA would pose a logistical nightmare to the companies, except banks and mobile phone companies that tend to keep good records of customer transactions. For transactions where traceability is a problem, such as kerosene purchases, returning the money to the consumers will almost be impossible.
“Ideally, that money should be paid to the State, but then one can challenge the basis of doing so, since it would have been collected based on a provision that has been declared null and void,” said Mr Kabochi. If retained by the company, he added, the money should be reported as additional revenue and subjected to corporate tax, in order to give the government a share of it. He warned, however, that such a route would leave the consumers, who had paid the taxes unable to recover their dues.
Debate will now shift to the Provisional Collection of Taxes Act and whether it is in conflict with the constitutional requirement of public participation before legislation is passed. In challenging the 0.05 per cent tax on large bank cash transfers, the Kenya Bankers Association argued that there was no stakeholder engagement ahead of the enactment of the law as provided for in the Constitution.
Parliament ordinarily gives affected parties an opportunity to present their views when it is deliberating a Bill. In a separate suit, Mr Omtatah successfully obtained orders suspending the levying of new taxes imposed under the Finance Bill, arguing that tax proposals must be discussed in Parliament and assented to by the President before coming into force.
The Provisional Collection of Taxes Act allows the Treasury to collect taxes proposed in a Finance Bill awaiting the approval of the proposed changes by Parliament, in effect making sure that the taxman does not lose out on planned revenue collection due to delays in passing the Bill. However, the tax law does not make provision for a refund of taxes collected under this temporary arrangement.
