Barely a year after the Ministry of Foreign and Diaspora Affairs directed diplomatic institutions with Kenyan workers to facilitate docking of taxes from their salaries, Kenya Revenue Authority (KRA) may have found a window to net additional levies from individuals who enjoyed Pay-as-you-earn (PAYE) exemptions.
In its battle with a top epidemiologist working for a UN agency, KRA demanded evidence that money used to acquire four properties was from the tax-exempt salary.
Failure by Dr Kibet Sergon to provide that evidence in the form of bank statements and other documents has seen KRA classify money used to acquire four pieces of land as taxable.
Dr Sergon’s decision to invest in a fourth piece of land in 2022 may have opened a Pandora’s box for Kenyans working for diplomatic organisations and who have acquired property, as they would have to prove that they used only their tax-exempt salaries for investment in the event the taxman comes knocking.
From the look of things, it was an ordinary transaction.
But KRA suddenly became interested in Dr Sergon’s finances, particularly the source of the money he used to acquire the properties.
Dr Sergon has been attached to the World Health Organisation, an agency under the UN, since 2009. His contract ends in December 2040.
Tax Appeals Tribunal documents indicate that the attention of KRA may have been drawn to the fact that Dr Sergon had been paying stamp duty despite declaring nil returns every year.
At that point, he had three parcels of land in Nakuru and one in Nairobi.
The taxman scrutinised Dr Sergon’s records between 2018 and 2021. KRA then decided to do an assessment of his income and tax payment records.
On June 15, 2023, KRA demanded that the epidemiologist pay Sh39.7 million, which it argued had accrued between 2018 and 2021.
Dr Sergon objected, maintaining that his salary was exempt from PAYE.
He held that he was recruited in Zimbabwe and awarded a fixed-term contract, which placed him in the category of UN staff exempted from PAYE, unlike his colleagues who are hired in Kenya and paid hourly.
Dr Sergon added that if there were taxes to be paid, the same should have been demanded from his employer.
Aside from insisting that Dr Sergon was obligated to remit PAYE, KRA said there was no evidence that the money used to buy the properties was from Dr Sergon’s WHO salary.
KRA held that the properties were purchased using undeclared income, separate from Dr Sergon’s WHO salary, which was taxable.
The taxman asked the doctor to submit bank statements, evidence of payments for the properties in Nairobi and Nakuru, sale agreements for the assets and loan agreements, which the taxman insisted would assist in determining whether to drop the demand.
Dr Sergon instead sent a letter from the WHO indicating that he is an employee of the UN agency, his appointment letter, the Ministry of Foreign Affairs circular directing diplomatic institutions like his employer to facilitate PAYE remittance from Kenyan workers and personal details printed out from the WHO’s human resource system.
However, KRA maintained that it needed the bank statements to verify whether Dr Sergon’s properties were purchased using funds from his employer, and that in the absence of such evidence, the epidemiologist would have to pay the amount demanded.
KRA dismissed Dr Sergon’s objection on September 11, 2023, but slightly revised the demand downwards to Sh35.9 million.
The epidemiologist took the battle to the Tax Appeals Tribunal by filing a case on February 28, 2024.
Unfortunately for the epidemiologist, the tribunal declined to hear the appeal as it was filed late.
Under Kenyan law, one is required to file an appeal against the KRA’s objection decision within 14 days of the determination.
“The notice of appeal ought to have been filed on or before October 11, 2023 but was filed 90 days late, contrary to the provisions of the Tax Appeals Tribunal Act. Accordingly, the appellant ought to have sought the requisite leave to file the appeal out of time,” the tribunal said in its determination on January 25, 2025.
“The tribunal will down its tools since it is without jurisdiction in this matter on the basis that the appeal was filed out of time without its leave.”
With the appeal struck out, KRA is now free to proceed with its claim against the top WHO epidemiologist.
