Tax defaulters will be allowed to negotiate payment plans to avoid a swift sale of their assets in a new law allowing the Kenya Revenue Authority (KRA) to dispose of seized property such as ships, planes, land, buildings and cars to recover debts.
The Finance Act 2022, which was signed into law by President Uhuru Kenyatta last Thursday, hands the KRA Commissioner for Domestic Taxes powers to freeze and seize ships, aircraft, and cars and sell them off within two months to recover the tax owed.
In changes to Section 40 of the Tax Procedures Act, the new law requires the KRA Commissioner for Domestic Taxes powers to freeze and seize ships, aircraft, land, buildings and cars by issuing directives to respective registrars.
The commissioner will alert a defaulter of the seizure notification to the registrar within seven days in writing. Such notifications made to the registrar will only be lifted upon payment of all dues as directed by the KRA commissioner.
“Where the taxpayer fails to pay the tax liability described in the notification under subsection (1) within two months after receipt of the notification, the commissioner or authorised officer may, at the cost of the taxpayer, dispose of the property that is the subject of the restraint on disposal, mortgage or charge, by public auction or private treaty, or as provided for under the relevant Act for the recovery of the tax,” the Finance Act 2022, which takes effect in January next year, reads in part.
But in a relief to defaulters, the new law opened window for negotiation of payment plans.
“Provided that where a plan has been agreed between the taxpayer and the commissioner, the liability shall be settled within the agreed payment plan before the notification by the Commissioner is lifted,” the Finance Act 2022 says.
The provision for negotiated payment plans is in synch with the recommendations by the Finance and Planning Committee of the National Assembly to amend the section.
The committee had recommended changes to the Finance Bill 2022 to forestall the sale of frozen assets within two months to recover unpaid taxes, saying it would hand defaulters more time to settle their dues.
The now-approved two-month period for settlement of arrears had also elicited protests from a host of business lobbies including the Kenya Private Sector Alliance (Kepsa) and tax consultancy firms.
Kepsa successfully lobbied the Finance Committee of the National Assembly to make enforcement of the two-month settlement period conditional in its report so that “where a payment plan has been agreed between the taxpayer and the commissioner, the liability shall be settled within the agreed payment plan”.
The committee, in a recommendation to the House, had argued that the proposed change to allow wealthy tax cheats more time “can be an avenue for tax recovery”.
Consultancy firm Deloitte also criticised the two-month sale window of seized assets, terming it ‘rather short’.
“The two-month period within which a taxpayer ought to settle the outstanding tax, failing which their property will be disposed of, is rather short,” Deloitte said in a commentary on the Finance Bill 2022.
“Although this proposal is intended to enhance revenue collection by providing KRA with more options to recover taxes, we believe it could also infringe on the taxpayers’ property rights. Further, it might slow down transactions involving such assets, as it takes long to lift such caveats upon settlement or recoveries of the taxes in question.”
