How Henry Rotich dug Sh283bn tax hole
What you need to know:
- Tax collection was also frustrated with judges issuing ex-parte orders that stopped KRA from making tax demands on defaulters or investigating them.
- Enforcing compliance has been dogged by corruption within KRA and failure by Treasury to put in place structures to resolve disputes.
The Kenya Revenue Authority has been unable to collect Sh283 billion it had demanded from big taxpayers, thanks to a slow-paced Judiciary and failure by National Treasury to put in place a tax tribunal to resolve disputes.
The National Treasury, under Cabinet Secretary Henry Rotich, failed to constitute the Tax Appeals Tribunal for a year after the expiry of the previous team’s term in office, leaving the taxman at the mercy of defaulters who packed cases at a non-existent tribunal.
For the past 14 months, businesses and individuals aggrieved by KRA tax demands were all too happy to file appeals before a tribunal they knew had no quorum or was, at best, moribund.
Meanwhile, the disputed taxes could not be collected and KRA could do nothing. “Defaulters took advantage of this vacuum to lodge cases at the Tax Appeals Tribunal and we could only wait,” says KRA commissioner-general James Mburu, who took over in June.
Mr Rotich — who was dropped from Cabinet in the wake of Kimwarer and Arror dam scandals — only gazetted members of the independent tribunal on April 2019, some 12 months after the previous team exited leaving only the chairman in office.
By last week, the tribunal had not met, two months after they were sworn in by Judiciary Chief Registrar Anne Amadi, as more appeals continued to pile.
By last week, a total of 803 appeals had been lodged. “I hope they will be able to meet this month. Otherwise, cases will continue to pile up and our hands are tied,” said Mr Mburu.
The tribunal consists of a chairperson and at least 15 but no more than 20 members, who are appointed by the Cabinet Secretary.
The law requires that at least five members be advocates of the High Court of Kenya. The current chairman is Mr Moses Buyuka Obonyo, who was appointed on April 1, 2015 and whose term will expire on April 1, 2020.
In total, Mr Rotich appointed 19 members whose first term expired on April 2018.
And even though there was room for reappointing them, Mr Rotich did not, rendering the tribunal moribund for nearly a year.
On April 15, Mr Rotich made fresh appointments, including Helen Winifred Achieng’, Wambui Namu, Mahat Somane, Delilah Kadzo Ngala, Tanvir M. Ali, Richard Rotich, Wilfred Nderitu Gichuki, Josephine Kemunto Maangi, Gabriel M. Kitenga, Timothy Kipsimian Chesire and Patricia Magiri-Anampiu.
Others were Eli Njeru, Catherine N. Mutava, Abraham Kibet Kiprotich, Geoffrey Karuu, Patrick Lutta Odongo, Mwai Mbuthia and Ponangipali Ramana Rao.
While the Act gives the CS the power to appoint members to the tribunal, it is not explicit on the duration in which the CS should make the appointments.
The Act is also silent on how long the CS should fill a position in the tribunal if a vacancy occurs.
Tax collection was also frustrated with judges issuing ex-parte orders that stopped KRA from making tax demands on defaulters or investigating them.
There are currently 667 tax-related cases pending in the courts relating to demands of Sh60.4 billion. “What we need is a tax court and that would help us resolve the issues urgently,” said Mr Mburu.
Following a national outcry that the Judiciary was a stumbling block in both the war against corruption and collection of revenue, the Commissioner-General says they have of late seen some positive changes.
“The number of injunctive orders have dramatically reduced and people are no longer using the courts to stopping us from doing our work,” he says.
For instance in June, the High Court dismissed an application by Krystalline Salt, a salt production company, seeking to quash a Sh1.3 billion tax demand.
The company had gone to court last August seeking orders to stop KRA from demanding Sh1,358,754,214, arguing the decision was done in violation of due process as laid out in the Tax Procedures Act and in contravention of the Constitution.
In a separate case, Keroche Breweries Ltd CEO Tabitha Karanja and her husband Joseph Karanja denied Sh14 billion tax fraud charges before Milimani Chief Magistrate Francis Andayi.
Another notable case has been by lawyer Tom Ojienda who has had a running battle with KRA over a Sh443.6 million tax bill.
On November 2, High Court judge Chacha Mwita prohibited the Directorate of Criminal Investigations and KRA from starting civil or criminal proceedings against Prof Ojienda in respect to the tax issue.
The taxman has also been battling betting firms which are said to owe KRA over Sh61 billion in unpaid withholding tax.
In July, some 27 betting firms were closed as KRA flexed its muscles over the arrears.
It has now started charging companies in court arguing that “disputing tax does not absolve anyone from criminal culpability”.
Last month, directors of the Naivasha-based Keroche Breweries were charged over Sh14 billion tax fraud allegations.
Also arrested was billionaire Humphrey Kariuki; he has been charged with evading taxes worth Sh41 billion through his companies Africa Spirits and Wines of the World.
“A tax dispute is only civil when it is not deliberate,” says Mr Mburu.
While the iTax database had close to four million taxpayers by June 2018, enforcing compliance has been dogged by corruption within KRA and failure by Treasury to put in place structures to resolve disputes.
While Treasury was quick to set high targets for KRA, it failed to give it support to collect debts, leading to a paralysis.
By June 2018, the taxman missed the target for the year by Sh106 billion, while that for the years ended June 2017 and June 2016 fell short by Sh66.6 billion and Sh12.4 billion respectively.
“The target is no longer an issue for me as long as all entities supposed to pay tax do so,” says Mr Mburu.
But whether a tax court will be put in place measures to resolve the disputes and hasten the tax prosecutions remains in the hands of the Judiciary.