MPS reject 50pc tax appeal deposit plan

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The National Assembly Committee on Finance and National Planning chair Gladys Wanga. FILE PHOTO | NMG

A parliamentary committee has shot down Treasury’s proposal requiring firms and individuals to deposit half of disputed tax demands by the Kenya Revenue Authority before escalating the case from the tax appeals tribunal to the High Court.

The Finance and Planning Committee of the National Assembly voted to remove the proposed changes to the Tax Appeals Tribunal Act after business lobbies and tax experts argued the provision will negatively impact cash flows for companies and individuals.

“The committee observed that the requirement to deposit 50 percent of the disputed amount before filing an appeal in the High Court will reduce working capital for businesses and also deny justice to taxpayers where they are unable to raise the amount. The committee, therefore, recommends that the clause be deleted,” the committee, chaired by Gladys Wanga (Homabay), wrote in its report on Finance Bill 2022 for debate and approval by the House.

Business lobbies such as the Kenya Association of Manufacturers (KAM) and Kenya Private Sector Alliance (Kepsa) had protested the proposals saying they will increase the cost of doing business.

They added that such an amendment will deny taxpayers unable to raise 50 percent of the disputed taxes the right of appeal contrary to Section 50 of the Constitution and also usurp the powers of the High Court.

Currently, courts determine whether KRA’s demands for security are justifiable and then set the cash to be used as a deposit or bank guarantee.

Treasury Cabinet Secretary Ukur Yatani, while proposing the amendment on April 7, had said the proposed changes were aimed at encouraging out-of-court settlements for faster resolution of tax cases in a bid to unlock billions of shillings tied in legal processes for years.

Through the proposed changes to the law—which is now subject for debate by the whole House— Kenya was seeking to join other countries on the continent such as Tanzania (where there’s option of objection to the High court) and Ghana where the deposit is 30 percent of assessed taxes before appealing.

A similar provision was in July 2020 ruled out as unconstitutional in Uganda after a 10-year court battle.

KRA’s Deputy Commissioner for corporate policy Maurice Oray, who served as vice-chairman of the budget committee at the Treasury, had said the proposal was a result of analysis of trends in tax arbitration processes which drag as long as 20 years and was beneficial to government and taxpayers.

“From the surface, it looks a bit punitive, but let us look deeper into the issue. At the end of it, the interest (on disputed taxes) is capped and so the government cannot collect more than 100 percent of what’s payable,” Mr Oray said.

Taxpayers will be refunded the deposit within 30 days if the cases are ruled in their favour.

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