Court halts Uhuru tax waivers given to Japanese firms
Justice Agnes Nzei also issued an order directing immediate payment of Ms Rachel Mutheu Ndambuki’s salary arrears accrued from February last year, if they have not been paid and thereafter monthly.
The cabinet secretary for National Treasury has no powers to grant tax waivers to any entity or person, the High Court has ruled, declaring that the power is bestowed on Parliament.
In a judgment that has reversed a decision by former President Uhuru Kenyatta’s government to exempt Japanese companies, consultants and employees from paying income tax, Justice Dennis Kizito said only the National Assembly can grant tax waivers through legislation.
The judge added that the National Assembly must also involve the public when legislating on tax waivers and that a public record of each waiver and the justifications should be kept. Each waiver, and the reason for it, should be reported to the Auditor-General.
“It is hereby declared that exemption or waiver of tax income can only be granted the National Assembly through national legislation after the same passes as a money bill as provided under Article 114(3) of the Constitution; after public participation and in strict compliance with Article 210 of the Constitution,” said the judge. He was ruling on a petition filed by Mr Eliud Matindi.
The exemptions granted in 2021 covered 16 agreements between Kenya and Japan signed between December 2007 and September 2020. Beneficiaries were Japanese companies, workers and consultants involved in projects financed by Japan.
Justice Kizito noted that there was no justification for the exemption and the amount wasn’t indicated. He described it as “economic apartheid, where, equal pay for equal work is thrashed”. “Japanese employees working in the same organisation end up with all their money, while Kenyans end up paying,” said the judge.
“To make matters worse, even foreign expatriates working for the same companies end up paying more than their Japanese counterparts,” he added.
Justice Kizito found that former Treasury CS Ukur Yattani violated the Constitution by granting the Japanese companies tax waivers in 2021. The waiver was granted through a legal notice dated February 15, 2021. Justice Kizito said legislation on tax waivers in country-by-country agreements must comply with the Constitution and be on the basis of reciprocity, non-discrimination, equality and tax neutrality.
“Section 13(2) of the Income Tax Act is unconstitutional [as] it authorises income tax waivers through a notice in the Kenya Gazette and for specified persons without regard to the dictates of Article 210 of the Constitution,” said Justice Kizito.
The judge further noted that grants will not be affected by the judgment as they are not not loans covered under Article 114 of the Constitution.
