How to better protect taxpayers’ rights

BD tax law

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By Bosire Nyamori

The Kenya Revenue Authority is an agency like no other. It has extensive legislative powers whose goal is to tackle non-compliance with tax laws. For instance, the authority has the power of “full and free access” – couched in very broad and unqualified terms – to any place or thing to find information concerning taxpayers.

The exercising of any of these powers has the potential to create an adversarial relationship between the authority and affected taxpayers. When it encroaches on the taxpayer’s rights, he or she can seek protection under the Bill of Rights in the Constitution of Kenya, which shields them from unjustified interference with their rights by the State, and offers avenues to challenge violations.

Because of this, questions have emerged about where to strike the appropriate balance between these powers and taxpayers’ rights. A case involving an employee of the Nairobi City County illustrates this dilemma.

The employee asked the court to prevent the tax authority from arresting him after he refused to hand over documents that showed evidence of legal fees paid to a lawyer for representing the county in court.

The court considered the provisions of sections 44(1) and (2), 59(4) and 60(1)-(3)) of the Tax Procedures Act and the interaction with the Kenya Constitution. These provisions deal with, among other things, the rules pertaining to the seizure and forfeiture of goods, advocate-client privilege, and power of “full and free access” to anything or place to obtain information.

The court found that the sections violated some constitutional provisions, such as privacy. In particular, the court was concerned that the powers were wide and extensive. Yet there are mechanisms for ensuring their enforcement complies with Article 24 of the Constitution. Under this Article, rights may be restricted in circumstances that are reasonable and justifiable in an open and democratic society.

With regard to the powers of “full and free access”, two examples illustrate why the court may have struggled with their constitutionality.

To begin, the powers of “full and free access” can legally be exercised “at all times”. This implies that the tax officers could, for instance, pay a visit at ungodly hours, causing disturbances and distress to those targeted. Secondly, many professional firms close late in the year and open in the middle of January of the following year. Therefore, requests for information during statutory holidays would constitute unreasonableness. This is why statutes that have provisions about “access” require that this happens “at all reasonable times” or “any reasonable time.”

Several commendable initiatives have been undertaken in recent years to better protect taxpayers, such as the enactment of the Act and the taxman’s continuing efforts to improve its operations to serve taxpayers effectively and efficiently.

Going forward, policymakers and legislators may consider introducing legal and administrative changes to better calibrate the relationship between the tax authority’s powers and taxpayers’ rights.

The advocate-client privilege is central to the practice of law, yet sections 59(4) and 60(6) state that “full and free access” overrides “any law relating to privilege.”

Granted, the privilege is not absolute; for instance, information used in committing a crime or fraud. However, there are several documents that may be amenable to contestation about whether they are subject to claims of legal professional privilege that it is desirable to develop a procedure for dealing with these.

Fee notes that do not show the nature of advice given, but it would be invaluable to implementation if there was delineation of the boundaries. Indeed, the genesis of the controversy was a notice that KRA issued to the county government demanding records showing the services rendered by a lawyer.

The powers in sections 58, 59 and 60 of the Tax Procedures Act are the same as they concern “full and free access.” However, either by design or poor drafting, the taxman requires a warrant for section 60 and not sections 58 and 59. This could create room for mischief through arbitrary and selective use of powers in the law. As the substance of the sections is the same, there is no reason they should not be combined into one.

Alongside legislative changes, the agency could prepare policy guidelines outlining procedural steps to be followed when exercising the powers found in the law. The guidelines would not create new rights. Rather, they would make KRA’s powers and taxpayers’ rights accessible. For instance, some tax agencies have guidelines for accessing lawyers’ premises and records.

Courts in some Commonwealth countries have made decisions on the constitutionality and legality of similar provisions. In cases where they have made pronouncements in favour of taxpayers, the countries have responded by introducing remedial legislative changes. Borrowing on their jurisprudence as a benchmark for international best practices in tax administration will bolster Kenyan efforts on the legislative and practical front.

The intersection of human rights and tax laws is complex and implicates many jurisprudential issues. It is not open to easy resolution. Further legal and administrative changes that improve clarity in interaction between revenue collectors and taxpayers can only ameliorate this problem and, on account of this, are invaluable for an effective tax administration system.

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The writer is a lecturer at the School of Law, University of Nairobi, and chairperson of the Committee on Fiscal Studies.