Two days to Christmas, 2024 the Kenya Revenue Authority (KRA) attached bank accounts operated by Athi Water Works Development Agency, seeking to recover Sh567.7 million in withholding tax.
The government agency had failed to deduct withholding tax when making payments to JV Ach-Putman, the contractor that completed the Sh3.6 billion Ithanga water project in Murang’a County.
KRA had done an assessment on Athi Water Works Development Agency’s books in 2022 and demanded the amount. The agency filed an objection with the Commissioner of Legal Services and Board Coordination at KRA at the time, but this was dismissed. The KRA advised the agency to apply to the National Treasury for abandonment of taxes, if it was not willing to pay the amount.
The National Treasury rejected the application in August, 2023.
Every now and then, the KRA would issue attachment notices to Athi Water Works Development Agency’s bankers, but the dispute would temporarily be resolved.
Under Kenyan law, a taxpayer unhappy with the outcome of an objection lodged before a KRA Commissioner has 30 days to escalate the dispute to the Tax Appeals Tribunal.
Athi Water Works Development Agency filed its appeal at the tribunal on January 16, 2025 – nearly three years after the KRA Commissioner’s decision.
The agency blamed its delay in filing the appeal on the National Treasury. The agency claimed that a delay by the National Treasury in determining the application for abandonment of taxes had a ripple effect.
But when the KRA pointed out to the appeals tribunal that the Treasury made a decision on the abandonment of taxes application in August, 2023, over 16 months earlier, the Christine Muga-led panel ruled that the case before it had been filed unreasonably out of time.
“In the circumstances the Tribunal finds that the applicant’s (Athi Water Works Development Agency) delay was inordinate and that further, the applicant did not explain any reasonable cause for the delay that would enable the Tribunal to vindicate its right to appeal against the objection decision by the respondent,” the tribunal held in its February 28 ruling.
The decision meant that the tribunal could not legally delve into whether the tax demanded was accurate. That means the Athi Water Works Development Agency may have to pay the demanded taxes or have its bank accounts attached.
Several State institutions owe the KRA tens of billions in taxes, some dating back to the advent of devolution in 2010.
The decision by the Tax Appeals Tribunal shows that in the past one year alone, 10 State institutions have lost cases challenging Sh6.5 billion demands by KRA, even as President William Ruto’s administration maintains that everyone must pay taxes.
In 2018, the KRA threatened legal action against several State institutions after finding that it was owed Sh8 billion.
Clients seeking services at KRA headquarters, Times Tower, Nairobi on February 23, 2024.
Photo credit: File | Nation Media Group
When President Ruto, in February, 2023 directed State firms to cease suing each other and opt for alternative resolutions, he said that a bulk of inter-government legal battles with a Sh22 billion case value stemmed from tax disputes.
Some of the institutions that owe KRA failed to remit pay-as-you-earn (PAYE) which they deducted from employees’ payslips, while others did not deduct withholding tax from money paid to suppliers. In some cases, bureaucrats misinterpreted relevant laws in determining items exempt from taxes, in other cases a laissez faire attitude saw State institutions fail to deduct due levies from employees and suppliers.
Several institutions have picked up a huge tab after failing to give to Caesar what is Caesar’s, yet the taxman is denied these billions at a time there are concerns about the continued underperformance in revenue collection by KRA and the government increasingly targeting salaried workers with numerous deductions including housing levy and Social Health Insurance Fund fees.
A report by the National Assembly’s Liaison Committee notes in the first half of 2024/25 financial year, the total revenue fell short of target by Sh107.7 billion. “This implies that both the baseline and projected revenue targets may not be achieved, resulting in either reduction in planned expenditure or additional borrowing,” states the committee’s report on the 2025 budget policy statement tabled in the House this month.
KRA is also tussling with the Parliamentary Service Commission after the taxman slapped MPs with Sh1 billion tax demand. It insists MPs should pay income tax on their motor vehicle reimbursement and car maintenance allowances paid to Speakers, deputy speakers and lawmakers.
Decisions from the Tax Appeals Tribunal indicate that poor record keeping by State institutions may also have contributed to losing some of the cases, and increased their tax liability.
On April 18, 2023 the KRA issued a Sh612.3 million demand for unpaid PAYE, withholding income tax and value added tax (VAT).
The PAYE was in relation to some workers’ salaries, gratuity payments to former employees, motor vehicle benefits and airtime allowances.
The two parties agreed to a meeting, in which Kiambu County conceded to owing Sh102 million, and filed an objection with the Commissioner of Domestic Taxes to block any further demands by KRA.
The Commissioner asked Kiambu County to provide documents which could help ascertain that the due taxes were Sh102 million, such as supporting ledgers and invoices, and a detailed breakdown of the Appellant’s revenue streams. The county could not produce the documents.
That failure saw the Commissioner review the tax down to Sh373 million, based on available documents and explanations by Kiambu County bureaucrats.
Still dissatisfied with the outcome, Kiambu County filed a case at the Tax Appeals Tribunal, which dismissed the same on January 31, 2025. This means Kiambu will have to pay the full Sh373 million.
The devolved unit had, before filing an objection with the Commissioner of Domestic Taxes, agreed to offset the conceded Sh102 million dues in seven installments, and even made two payments totaling Sh27.4 million in 2023.
For Kitui County, its officials failed to furnish the taxman with names and KRA PINs of the workers it paid per diem and other allowances, how much each received, nature of trips they made, imprest surrender forms and other documents requested to resolve the tax standoff.
Kitui County’s case at the Tax Appeals Tribunal was dismissed on August 1, 2024, leaving it with a Sh1.059 billion bill.
Five days after that decision, Nairobi County also had its application challenging KRA’s move to attach City Hall bank accounts to recover Sh2.8 billion in unpaid taxes, some dating back to 2010, dismissed.
Members of the public walk past the entrance to City Hall in Nairobi on April 19, 2024.
Photo credit: Francis Nderitu | Nation Media Group
Nairobi County wanted KRA found in contempt of the tribunal for enforcing agency notices – attaching bank accounts – despite paying Sh350 million as part of a deal endorsed as an order of the tribunal, and which was to see the taxman free City Hall bank accounts.
Both applications were dismissed, but Nairobi County paid some of the taxes as the case was proceeding.
In the decisions made public by the Tax Appeals Tribunal in the past year, only the Kenya Ports Authority has successfully thwarted a KRA demand. In that case, the KRA wanted Sh2 billion from the ports management agency.
The Independent Electoral and Boundaries Commission (IEBC) was, however, successful in lowering its tax liability to Sh41.7 million, from Sh577 million. That tribunal decision was made on August 1, 2024.
