Image: HANDOUT
The National Treasury Cabinet Secretary will regain powers to waive penalties and interest for taxpayers if the government's proposed law sails through in Parliament.
This is a reincarnation of what has been proposed in the Finance Bill, 2024 which was rejected in its entirety by President William Ruto in June following anti-government protests.
The Kenya Revenue Authority (Amendment) (No.2) Bill, 2024 tabled in Parliament by the Leader of Majority in the National Assembly Kimani Ichungwah seeks to incentivize out-of-court settlement of tax disputes where principal taxes are agreed on and settled.
"Section 15A of the parent Act is amended by adding a new sub-section providing that the Cabinet Secretary National Treasury may waive, in part or whole, the penalty under sub-section 3 where funds have been transferred to the Central Bank in full,'' the proposed law reads.
A similar law was scrapped in 2023, ostensibly to avert abuse of powers by the exchequer boss after it was alleged that the Treasury had handed undue tax relief during the CBA-NIC merger to form NCBA Bank in 2019.
Ndungu in a letter dated March 24 directed the Kenya Revenue Authority to claim the Capital Gains Tax following the CBA-NIC merger.
Treasury in a letter dated June 21, 2019, said approval had been granted to exempt from Capital Gains Tax the instruments executed in the transfer of shares and the transfer of assets and liabilities relating to the merger of the two banks.
This was based on provisions of the Eight Schedule of the Income Tax Act which allowed the merger to be exempted from CGT.
The introduction of the bill in Parliament has stirred public debate, with some members of the public castigating President Ruto's government for bringing back aspects of the rejected bill through the back door.
A policy analyst and lawyer Jared Musembi fears that entrusting such privileges with state officials could lead to abuse and uncompetitive behaviors in the business environment.
"Salvaging rejected Finance Bill 2024? That bill makes no sense at all. The target is on the waiver issue. It seems there is an agent stuck with penalties,'' public affairs advisor Francis Wanjiku wrote on X.
"All the bills have been about tax, more tax, new tax. There hasn't been a single bill that parliament has passed aimed at increasing the ease of doing business, value addition to raw materials available, rapid jobs creation complex, education or health just tax,'' an X user Moses Ogondi said.
Peter Kinuthia Partner, head of Tax and Regulatory Services KPMG East Africa, and his colleagues Clive Akora and Stephen Ng’ang’a in an analysis said the proposal is likely to hurt collections where taxpayers are in default.
Even so, they argue that lack of it creates an additional burden for taxpayers who are inadvertently caught out thus calling for diligence to ensure compliance on the part of taxpayers.
Lina Omole, their counterpart at Deloitte says that where discretion is availed in limited and prescribed circumstances and with appropriate accountability mechanisms, it can be effective in giving the revenue authority leverage to tailor sanctions to individual taxpayers thus achieving the objective of fairness and equity in taxation.
"This should re-evaluate this proposal, since in my opinion, a complete abandonment of discretion to waive penalties and interest could inadvertently increase the tax burden and impede taxpayers’ ability to not only meet their obligation but also make profits, which is necessary for reinvestment to generate much-needed tax revenue for the Government."
She proposes the removal of the National Treasury and the revenue authority from the process in respect of waivers altogether because of their bias towards maximizing collection.
"This discretion can then lie with a neutral arbiter such as the Tax Appeals Tribunal, which can consider representations from both parties and arrive at a balanced decision."