Shifting Treasury Policy Procedures Cost KRA Sh47B in Taxes

The National Treasury and Kenya Revenue Authority (KRA) have been at odds over tax enforcement and procedures for the past five years, and the dispute has so far cost the nation billions of shillings that were intended to fund budgets and projects.

Treasury, the parent ministry engaged in the creation of tax policies, has been overturning some of the KRA’s rulings that were against giving a few corporations through Treasury undertakings access to significant tax abandonments.

The National Treasury conducted tax waivers and abandonments of Sh47.68 billion between January 2018 and February 2023, of which Sh28.25 billion was related to customs and the remaining Sh19.43 billion was related to domestic taxes.

Treasury undertakings, which are permissible under the Tax Procedures Act of 2015, ideally refer to taxes or customs duties that the National Treasury agrees to pay on behalf of taxpayers to support specific public interest activities, such as national security or humanitarian issues.

The Treasury urged KRA to regularize the unpaid undertakings as collected money, leaving the authority with deficits even though it is likely that these taxes won’t ultimately be exempt.

“And this (Sh28 billion) is what we have been asking from the Treasury. Sometimes we engage the Treasury in demanding these undertakings,” KRA acting Commissioner General Rispah Simiyu told the Departmental Committee on Finance and National Planning that is gauging all tax reprieves offered in the past five years.

“The ones indicated here (in the report) have not been paid. What would happen is Treasury would not pay but they would allow us to recognise it as tax collected. As that undertaking note comes in, it should have formed part of our revenue collection” she added.

Since the affected businesses and ministries, which serve as withholding tax agents, actually collected the taxes from customers but failed to remit the money to KRA due to preexisting treasury commitments, KRA has consistently disputed some of these undertakings.

The benefited taxpayer is needed to submit an application for undertakings; nevertheless, KRA is expected to implement the direction that results from the application.

If it believes the action conflicts with tax policy, KRA can make a different suggestion.

The Sh8.2 billion in taxes that Kenya Brewers Ltd (KBL) was allowed to forego by the National Treasury and Economic Planning Ministry in 2021 is one of the four major cases under dispute.

The Kenya Revenue Authority (KRA) has since requested a formal review of the judgment to overturn it on the basis of unjustifiable grounds.

Additionally, it permitted London Distillers Kenya (LDK) to forego paying 80% (or Sh265.6 million) of the principal excise duty that the booze producer had self-declared would be due in 2021. The Court of Appeal is now hearing the case.

“This is pure theft because this is tax the consumer actually paid. What is very interesting is that Treasury is pressuring KRA to collect and achieve targets while they are abandoning,” said Molo lawmaker Kuria Kimani who also chairs the National Assembly’s Finance Committee.

Out of the entire tax assessment of Sh1.42 billion in primary, the National Treasury undertook the Sh612 million agency tax that was intended to be paid to KRA in the case of the Ministry of ICT.

The Ministry of ICT was accused of failing to collect and remit withholding tax on payments made to project contractor Huawei Technologies Ltd. for the Konza Project, according to the main.

Later on, Huawei paid Sh812.6 million. KRA also failed to pay Maendeleo ya Wanawake Organization Sh38.36 million in unremitted agency taxes, of which Sh25.2 million was Value-Added Tax (VAT) and Sh13 million was Pay-As-You-Earn (PAYE).