Tax experts have faulted a proposal by the National Treasury that firms and individuals fighting Kenya Revenue Authority (KRA) in court over tax demands, deposit 50 percent of the disputed amount in a Central Bank of Kenya account saying it will hurt business.
Treasury Cabinet Secretary Ukur Yatani while delivering the 2022/23 budget on Thursday proposed amendments to the Tax Tribunals Act, 2013, to require that any firm involved in a row with the authority, should deposit 50 percent of the amount KRA claims to be owed before proceeding to appeal, should KRA win at the Tax Appeals Tribunal.
Mr Yatani said the move was meant to protect the disputed tax revenue. “We have noted that tax disputes take too long to conclude, especially after judgement by the Tax Appeals Tribunal. In order to protect the disputed tax revenue, I propose to amend the Tax Appeals Tribunal Act, 2013 to require a deposit of 50 percent of the disputed tax revenue in a special account at the Central Bank of Kenya when the Tribunal makes a ruling in favour of the Commissioner-General KRA as the taxpayer proceeds to appeal the decision,” the CS stated.
50 percent deposit
In the proposal, he said, should the taxpayer win the appeal in court, the money should be refunded within 30 days.
“I have also proposed that in case the taxpayer receives judgment in his or her favour on final determination of the matter, the 50 percent deposit shall be refunded to the taxpayer within 30 days after the final determination of the matter by the Courts,” he said.
The proposal has, however, attracted sharp criticism from tax experts, who argue that it risks killing small businesses without sufficient financial muscle.
They also see the move as one that will water down efforts towards ease of doing business in the country, force businesses to close down, and fire workers, thus repelling investments.
“The introduction of the requirement to deposit 50 percent of the disputed tax amount where a taxpayer intends to appeal an unfavourable ruling delivered by the Tax Appeals Tribunal is a retrogressive proposal from an ease of doing business in Kenya, especially given the time it takes to conclusively determine matters through courts,” Solomon Kihanga, a tax manager with KPMG said.
Tax Appeals Tribunal
The expert also cast doubts on the independence of the Tax Appeals Tribunal, which they say has in the past handed KRA favourable judgments in about 60 percent of the cases it handles, despite most of them being overturned by the courts upon appeal.
“How can you be required to pay for something that has not been confirmed? This proposal is going to hurt businesses in a big way since their cash flows will be eroded, operations will be affected and jobs will be lost,” said Mr Erick Nondi, a tax consultant in Nairobi.
Mr Nondi argued that small businesses in particular face the risk of closing down since they will have much less muscle to appeal tribunal judgments, many of which would be overturned by courts.