The government could lose billions of shillings in revenue accruing from failure to bank the taxes collected within the two days as provided in law if a Bill before parliament becomes law in its current form.
This is even as questions abound over the need for agents for purposes of tax collection considering that President William Ruto issued a directive on cashless government transactions via e-citizen as the cash payment was fraught with corruption and other inefficiencies.
The Kenya Revenue Authority (Amendment) Bill 2024 nonetheless, seeks to give the National Treasury Cabinet Secretary power to waive any penalties compounded daily at 2 percent and imposed on a bank appointed by KRA as revenue collection agent due to failure in remitting tax funds to Central Bank of Kenya (CBK).
The Bill seeks to amend section 15A of the KRA Act by introducing a new provision that cushions the KRA-appointed agents from the current penalties but is subject to meeting certain conditionalities that risk being abused exposing the government to billions in lost revenue.
“The Cabinet Secretary may waive part or the whole penalty due where the person has transferred the funds to the Central Bank in full,” reads the proposed amendment to the parent Act. The CS, the Bill proposes, may grant the waiver based on “any other justifiable reason as the CS may deem appropriate.”
Although there are condition-precedents to the waiver of the penalties, fears abound on account that they could be abused and rob the taxpayer for selfish-gain.
The Bill proposes that the waiver may be granted by the CS due to system downtime that has been “promptly reported to the Commissioner-General” or other non-compliance that was not as a result of wilful negligence or where a bank has been put under receivership or statutory management.
The occurrence of a force majeure event such as an act of God like floods or Maandamano or any other justifiable reason that delays the transfer of the funds could also be the reason for the grant of the waiver.
Section 15A (2) of the KRA Act states that any person appointed as KRA agent shall be required to transfer the funds to the designated Central Bank accounts within two days following the date of collection.
To enforce this compliance, the law provides punitive consequences for those who violate it.
“A person who fails to transfer the funds within two days shall be liable to a penalty equivalent to 2 percent of the revenue collections not transferred and shall be compounded for every other day on the amount of revenue that is not transferred,” the law states.
The law goes on to state that the penalty shall be treated as a tax debt due to the government and the enforcement measures for collection and recovery of the tax shall apply.
CPA Ernest Muriu of Ernest and Associates says that the waiver is good and will help banks that have suffered the wrath of the penalties due to failure or delayed remittances of the revenue collected.
“This is a good move, as banks have been levied huge fines over the delays in transferring the collected funds, which delays are beyond them,” says CPA Muriu.
Recent cases include Kenya Commercial Bank (KCB) and Spire Bank which paid KRA Sh2. 1 billion and Sh152. 2 million respectively in fines for delayed remittance of taxes.
This even as it emerged that if the Bill is enacted as published, rogue agents may collect the revenue, trade with it and cite the conditionalities for the waiver to escape the penalties due to the government.
The government collects funds in the form of ordinary revenue and Appropriation in Aid (AiA) from Kenyans daily and expends the same on a daily basis.
The purpose of the punitive provisions in the law is so as to ensure that the government does not lack the revenue to fund its operations due to “willful” failure by agents to transfer the collected taxes within the required period.
It also checked against errant agents from trading with the taxpayers’ funds for their own selfish benefits.
Other than waiving the penalties, the Bill also seeks to anchor the Kenya School of Revenue Administration (KeSRA) into law so as to provide academic credentials in revenue administration and other programs it deems fit including curriculum development and assessment and examinations.
“This is important, as now KeSRA gets legal backing to exist and operate,” says CPA Muriu. This means that KeSRA will not be able to collaborate with Universities to award Bachelors and Masters Degrees on matters of taxation.
However, the proposal to move the power for appointment of deputy commissioners from the KRA board to the Commissioner-General leaving the board with the power to only appoint commissioners has also been questioned.
“Giving powers to the Commissioner-General to establish and make Deputy Commissioners appointments is negative as it goes against the principles of good corporate governance.
It creates a monster of Commissioner-General, who directly, without any competitive and transparent process, appoints his favourites as potential successors,” says an MP on condition of anonymity.
The MP’s fears are that the Commissioner-General may decide to focus on Human Resource issues at the expense of his role as the country’s chief tax collector.
