Kibaki to pay Sh8m tax bill
President Kibaki tops the list of public officers from whom KRA is demanding millions of shillings in unpaid taxes since last year’s coming into force of the new Constitution.
Mr Kibaki could pay up to Sh8 million to the taxman based on the Sh24.5 million he is expected to earn in salaries and allowances by the close of the current financial year.
The taxman is also targeting judges, ministers, MPs, permanent secretaries and top military brass as well as those serving in various commissions.
These officers have traditionally enjoyed tax-free benefits — which KRA categorises as any income or allowance — as well as duty-free vehicle imports.
Kenyan presidents have enjoyed tax exemptions since independence under the Income Tax Cap 470, which covers all income derived in Kenya.
“[This includes] that part of the income of the president derived from salary, duty allowance and entertainment allowance paid or payable to him from public funds in respect of or by virtue of his office as president,” says the law.
Mr Kibaki has earned Sh8.4 million in basic salary since July last year and together with allowances will pocket Sh24.5 million at the close of the year next Tuesday. That means he will have to pay Sh8 million to the taxman to be fully compliant with the Constitution.
“No law may exclude or authorise the exclusion of a State officer from payment of tax,” the Constitution says in Article 210(3).
KRA’s tax exemption schedule is a weave of complexity with more 60 clauses — including the rather ridiculous ones such as exempting anyone getting paid off by UK Atomic Energy Authority for discovering uranium in Kenya.
People familiar with the matter said the Kenya Revenue Authority (KRA) has written to accounting officers in the relevant arms of government demanding that all those currently enjoying exemptions under the Income Tax Act pay up as provided for in the Constitution.
On Tuesday, the chairman of the Commission on Implementation of the Constitution (CIC) Charles Nyachae confirmed that he had advised the taxman to enforce this constitutional requirement.
If fully implemented, the Constitution’s demand that no one gets exempted from paying taxes on the basis of their jobs should get a large number of privileged Kenyans and charities back into the tax net.
“The Income Tax Act, Cap 470 and the VAT Act Cap 476, as currently constituted contain clauses that are in breach of Article 210(3) of the Constitution,” said Mr Martin Kisuu, a tax partner with PKF Eastern Africa.
Pressure is expected to mount on the tax-exempt after KRA confirmed the CIC and commissioners in the newly created constitutional offices have been paying taxes on salaries and benefits at the rate of 30 per cent.
At the Judicial Service Commission, Mr Ahmednasir Abdullahi, one of the commissioners, said they have been paying taxes from day one.
“It is true, commissioners serving in the newly established commissions have been paying their taxes,” said John Njiraini, the KRA commissioner in charge of the Large Taxpayers Office.
Enforcers of the Constitution expect stiff resistance from nearly all the parties concerned but the greatest battle is going to be getting members of parliament to comply with KRA’s demand that they pay the relevant taxes effective July last year.
Though the tax noose has been tightening slowly on the necks of constitutional office holders, it has been sure in coming.
The clearest signal came early in the year when the Treasury inked a deal with the International Monetary Fund (IMF) committing Kenya to phasing out exemptions.
The February agreement was signed in return for the IMF’s release to Kenya of $509 million under a three-year extended credit facility (ECF).
Kenya promised to undertake sweeping tax reforms and in particular observe the constitutional requirement that no State officer would get tax exemptions.
A select group of highly placed public officers, including the president, vice-president, Cabinet ministers, MPs, judges and top military brass were exempted from paying a wide range of taxes.
The public has strongly opposed the exemption of MPs from paying taxes and the latest demand by KRA that all public officers pay up to comply with the new law may turn out to be the taxman’s biggest public relations coup ever.
But the taxman must also be ready to confront the MPs wrath – armed by the painful experiences that anyone who has asked them to pay up in the past went through.
Former Finance minister Amos Kimunya learned the hard way when the Finance Bill he introduced in Parliament to nullify the exemptions was amended on the floor of the House, leaving MPs in a tax neutral position.
Mr Kimunya shortly thereafter had to contend with a vote of no confidence in him that was largely seen as parliamentarians’ act of revenge.
Mr Kimunya was hounded from the plum Ministry of Finance job in 2008 after the no-confidence motion against him over the sale of the Grand Regency Hotel passed almost unanimously.
“Given the mood in the country and following the passing of the new Constitution, Kenyans feel that every person should pay taxes,” said Mr Maurice Wangutusi, the tax director at Deloitte.
KRA estimates that the Parliamentary Service Commission (PSC) — whose officials on Monday conceded receiving the demand note — should remit about Sh700 million in income taxes this year, including levies on car imports.
The MPs have been falling back on a letter written by Commissioner General Michael Waweru in the run up to the referendum on the Constitution last year that they would be allowed to serve their full term without paying taxes.
KRA is said to have written the letter based on legal advise from Attorney General Amos Wako. Constitution enforcers now argue that the advise was yet another of Mr Wako’s many masterstrokes meant to mollify the MPs into passing the new law with the knowledge that it would not be worth the paper it was written on once the law came into force.
End up in court
With Mr Wako due to leave office in August, the legislators will be on their own in the fight for tax exemptions that is expected to end up in court for a legal interpretation.
The judges (probably newly vetted) themselves have the enviable role of ruling whether they want to start paying taxes immediately or delay it until August next year.
The die however appears to have been cast given the firm promise that Chief Justice Willy Mutunga made to live by the letter and spirit of the Constitution.
During the Kimunya amendment, which saw the MPs petition the President on the matter, judges were briefly taxed and KRA politely declined to refund them the money when the bill was amended. There is no law for refund of taxes paid under varied laws.