National Taxpayers Association National Co-ordinator Irene Otieno responds to questions from the public via Sunday Nation.
The taxation regime as it stands favours the tax collector in case of a dispute. What other recourse exists other than the courts when one feels aggrieved? Fatuma Mohammed, Mombasa County
Indeed, parties to a dispute are greatly concerned about the court’s impartiality, otherwise, its decision or award is tainted. Parties to a dispute place premium on speedy resolutions, maintain taxpayers and tax administrator relationship and a wealth of seasoned experts. These considerations have informed Kenya’s tax dispute structure as highlighted below:
Tax disputes occur when a taxpayer and a tax administrator have opposing views with regards to tax liabilities and entitlements, and subsequently opt to take some course of action. For instance, in Kenya, most tax disputes usually arise from KRA tax assessments of taxpayers as a result of an in-depth audit or a routine compliance check.
In such a case, the first course of action available to a taxpayer is to object the tax decision as provided by Section 51(1) and (2) of the Tax Procedures Act, 2015. Should a taxpayer not be satisfied with the decision on the objection, they are allowed to appeal the decision to the Tax Appeals Tribunal and may further file appeals to the High Court and the Court of Appeal.
Other than the option to go to the courts, KRA has also established an Alternative Dispute Resolution Framework effective since July 1, 2015, as per Section 55 of the Tax Procedures Act, 2015 whereby either party can initiate the ADR process by writing to the other party.
The periodic reports by the Controller of Budget paint a worrying trend in terms of local revenue collection by the county governments. Not a single county has ever met its target and in all talk about revenue, local revenue collected by counties has often been treated as secondary. What is your take on this situation? Caroline Waswa, Kitengela
The need for county governments to have reliable revenue is a key principle of devolution. This is contained in Article 175(b) of the Constitution of Kenya, 2010. The devolution arrangements also feature political and administrative devolution, as well as fiscal decentralisation.
The 47 county governments budget for devolved functions and generate revenue from local sources. However, the counties have not been meeting their targets due to some of the following reasons: the counties inherited structures including revenue administration procedures and guidelines, as well as revenue collection personnel.
In the process, many inefficiencies were also transferred such as weaknesses in the regulatory framework for OSR management — billing, corruption, laxity among revenue collectors and poor setting of annual revenue targets. While some county governments have made progress in resolving these problems, others still struggle with issues such as technology and implementation of administrative guidelines on the payment of fees and charges.
Numerous surveys show that the exchequer loses over a third of its annual budget to corruption. Is there anything ordinary citizens can do to force the authorities to be more prudent with their hard-earned funds? Komen Moris, Eldoret
Your observation is similar to the majority of Kenyans, who continue to question the wisdom of bigger budgets each year, without addressing corruption. Kenyans continue to be ignored when they question corruption.
The dire state of affairs demands that we not only focus on corruption but also budget lines that are not tainted by corruption but are wasteful and inefficient. Look at the wage bill crisis that is fueled by multiplicity of allowances while we know that only 17 percent of Kenyans are formally employed. We are a selfish nation that the few 17 per cent take home more than 50 per cent of the budget. I would rather have modest remuneration but strengthened public services for an equitable society.
Kenyans must stop delegating anti-corruption work to institutions only but take an active role in this matter.
Do you share a common belief gaining currency among Kenyan industrialists that the revenue authority is working at the behest of influential individuals to push their business agendas against perceived competition to the detriment of the victimised? Kelvin Njoroge, Kiambu County
Noting that efficient tax compliance hinges on the perception of fairness of the tax administrator, the onus is on the KRA to strive and ensure that taxpayers view their actions as objective and devoid of ulterior motives.
However, as an institution, we support the need for both individuals and the corporates pay their fair share of taxation. I hold no brief for KRA but take note of their concern alluding to the fact that not all corporates have paid their fair share of tax. My observation of KRA’s vigour to introduce taxes such as the minimum tax, may indeed be fueled by such information. Mistrust between the taxman and businesses ought to be addressed and associations such as NTA, KEPSA and KAM provide great opportunities to broker these discussions.
Do you agree with the government’s plan to reverse the much needed tax relief measures introduced in April 2020 to cushion Kenyans against harsh economic times? Faki Nuru, Makueni County
The package for the proposals put forward by the government offered tax reductions, waivers, and deadline delays for certain tax payments and compliance obligations and, as such, generally gives taxpayers — especially those who are most vulnerable and economically disadvantaged — some very welcome breathing room to preserve their cash-flow and take additional time to organise their tax affairs in these trying times. However, according to IMF, the cuts on the other hand cost the Kenya Revenue Authority and compromised the State’s ability to deal with emergencies and spending on development projects like roads, power plants and water infrastructure. Kenya’s debt stood at 61.7 per cent of GDP at the end of 2019, up from 50.2 per cent at the end of 2015. The IMF pointed out that Kenya’s budget deficit is driven up by gaping budget deficits that were caused by large infrastructure projects such as the SGR railway line. We disagree with the government’s position. There were other options such as renegotiating debt repayments, addressing graft and reducing inefficiencies.
What is your organisation doing to defend corporates like Keroche Industries, Africa spirits, AGOL and many others that are being maliciously targeted for alleged tax offenses by the KRA yet no concrete evidence has been adduced? Gaitho Mercy, Nairobi County
According to Article 201 of the Constitution, the burdens and benefits of the use of resources and public borrowing shall be shared equitably between present and future generations. This gives the government the power to impose taxes and charges to any registered entities. However, weaponisation of the policies against certain enterprises slowly kills the entrepreneurial culture and passion to do business in the economy. This calls for urgent policies that will limit the government from such actions. Some action from KRA and government has been construed as settling scores, which is a drawback to tax paying morale. The action by KRA to inform the public in the dailies and in their website is key in restoring confidence in the objectivity of its action.
There has been an outcry over excessive buying or leasing of vehicles by the government which leads to high expenditure on the same as well as daily running and maintenance expenses. Have you addressed this matter and will the same ever be curtailed? Githuku Mungai, Nairobi
In principle, the government policy direction has been to move from purchase to leasing assets as has also been evidenced with the leasing of medical equipment (MES) for the health sector. Economists hold the view that assets that become obsolete due to technological advancement greatly benefit from leasing arrangement. Therefore, to address your concern, we have addressed this issue within the bigger conversation on the need for austerity measures. Unfortunately, there has not been much improvement on this matter as any action on the same has been very short-lived. We hold the view that the Office of the Controller of Budget would be best placed to monitor the implementation of circulars from Treasury, that have been unequivocal on this matter but whose implementation has not taken effect. The office of the Auditor-General is also well placed to use this as a yardstick to issue audit opinions for government entities.
Why is the taxman targeting corporates that appear to do financially better than others in a warped way of carrying out its mandate? Are power brokers misusing KRA to settle business scores? Masai Mandela, Kajiado County
KRA is mandated to undertake compliance checks and tax audits on all taxpayers in accordance with various provisions including but not limited to the Constitution of Kenya, 2010, the Tax Procedures Act 2015, the Income Tax Act (CAP 470), the Excise Duty Act 2015, the East African Community Customs and Management Act (EACCMA) 2004. The resulting outcome of which may require additional assessments, and in the case of fraud, prosecution of the offenders. However, the criteria used by KRA to undertake such compliance checks are not clear and it may seem that they target specific corporates.
Winston Churchill once said, “We contend that for a nation to try and tax itself into posterity is like a man standing in a bucket and trying to lift himself by the handle”. Is this where our country finds itself? Juma Hassan, Mombasa County
I would say that it would depend on the context in which we look at it. Churchill used this metaphor several times and one scenario where he used it was in 1904 when Britain wanted to place tariffs on foreign imports in the hopes of encouraging the growth of British industries. The argument for this was that if foreign imported manufactured goods were shut out, the country would manufacture the goods themselves. However, this is not necessarily true. Churchill’s argument in this case was against the idea that keeping out foreign goods would create more wealth, and more employment. He was against the belief of promoting prosperity by limiting business with foreign importers and taking money from hardworking men and women. However, in the context of taxation to fund development of a country, the metaphor may not be applicable. The idea of taxes came about as a way for the citizens of a country to contribute towards goods and services that they would otherwise be unable to fund as individuals. An example of this is funding for a road that would allow members of a community to go to their places of work or send their children to school with ease. The same logic would apply to provision of health services, education, water supply etc, especially in light of the international inclination towards Domestic Resource Mobilisation (DRM) to fund development as opposed to donor funds. In this context, the most reliable source of DRM for most developing countries such as Kenya would be tax revenues.
Rampant tax evasion, especially in the Port of Mombasa, border posts and major airports is a matter of great concern, with corrupt customs officials colluding with importers to deny the government the much-needed revenue. How can this be curbed? Dan Murugu, Nakuru
Tax payment is a civic duty and an imposed contribution by the government to contribute to her principal source of revenue to provide public goods and services to its citizenry. It is a compulsory unrequited payment to the government. Tax evasion prevalence is vast and greatly impairs taxation’s macro- economic objectives thus creating a rift between actual and potential government tax revenue ,raising many issues which need urgent attention and solutions.
However much the government endeavours to exercise its sovereign right to collect taxes, nobody likes paying taxes although there is great appreciation that taxes need to be paid. This drives some people into tax evasion, making the government constantly fail to raise targeted tax revenue, compared to the rising demand of revenue by the government in order to deliver.
The KRA is racing to bring more people into the tax brackets and curb tax cheating and evasion in the quest to meet targets in an economy where Covid-19 pandemic has battered collections. These “allegations” exist and the KRA authority is seized of this information.
Consequently, we continue to see a move towards more automation and less interaction between the KRA staff and taxpayers, in a sense leveraging on technology to minimise revenue leakages. Instances of criminal activities have been escalated to the courts and seizure of these proceeds of crime. Administrative anti-corruption strategies such as wealth declaration continue to contribute to this area.
The tax cheats risk travel bans, collection of duty directly from their suppliers and bankers and prosecution in what promises to be the biggest crackdown yet on high net-worth persons. The taxman reckons the tax evasion schemes include filing fictitious value-added tax (VAT) invoices to evade paying taxes running into billions of shillings.