- The officials struggled to provide comprehensive details about the agreement, including the exact amount of tax relief granted.
- It emerged that the gazette notice the officials relied on was not domesticated and was yet to be placed under the EAC Act.
Image: EZEKIEL AMING'A
MPs have intensified a probe into tax exemptions running into billions of shillings granted to Blue Nile Rolling Mills despite the firm ‘not meeting’ the threshold.
New details brought before the MPs showed that the company was awarded the benefits yet there is no proof that it delivered on the agreement.
National Treasury officials appearing before the Committee on Delegated Legislation had a difficult time defending the decision made in 2020 to grant the irregular grants of tax exemption.
National Treasury director of macro and fiscal affairs Musa Kathanje, who represented the PS Chris Kiptoo, was unable to quantify how much KRA lost due to deal.
“The tax incentives for Blue Nile Rolling Mills Limited were granted in 2020, with the expectation that the firm would create jobs and boost exports,” said Kathanje.
The committee chair and Ainabkoi MP Samuel Chepkong’a maintained that Blue Nile, which operates under the Special Operating Framework Arrangement (SOFA), was illegal granted tax exemptions.
The award of the SOFA agreement that Blue Nile signed with the government in 2020, exempts the company from paying Income Corporate Tax for up to 10 per cent.
This was in addition to further exemptions on Value Added Tax, Import Duty, Import Declaration Fees (IDF) and Railway Development Levy (RDL) on raw material imports for 10 years an agreement that many manufacturers have lamented destabilised the steel Industry.
Documents placed before the committee showed that the award of the tax relief was done against the law as the institution mandated to develop and pass laws to effect the tax exemption were not involved.
It emerged that the gazette notice the officials relied on was not domesticated and was yet to be placed under the EAC Act.
“You have made reference to some gazette notice that was signed, where is that gazette notice, is this act an Act of Parliament of Kenya,” asked the chair.
It emerged that the document relied on by the Treasury officials was not domesticated and was not aligned to the East African Community Act.
“Article 2 of our Constitution recognises international treaties which is fine and you have one from Tanzania, but there is a process we just don’t adopt them in a blanket manner, they have to pass through Parliament to be domesticated so that is where we are coming from,” said Nyando MP Jared Otieno.
“Where did Kenya domesticate what you have presented before us, otherwise it is not recognised in Kenya?”
Questioned were also raised on why with every review of the finance laws, the provisions were reviewed to suit specific companies.
From the session it emerged that last year alone, the government spent over Sh400 billion in tax exemptions, which were a direct charge to the taxpayer prompting the government to employ additional taxation measures to meet its demands.
“"It is clear that you do not have the necessary details or the comprehensive answers we require. As a committee, we want to meet with PS Chris Kiptoo in person to obtain the answers we need regarding the Blue Nile Rolling Mills SOFA deal," said Chepkong'a.
When the Committee members raised questions on how much money Blue Nile had benefited from in tax exemptions, the Treasury officials diverted the matter to the Kenya Revenue Authority despite earlier claiming to have the figures.
They further did not have any documentation to back their claims that the company complied with all the requirements needed for a company to be awarded the Special Operating arrangement.
The officials struggled to provide comprehensive details on the agreement, including the exact amount of tax relief granted.
Treasury officials were also unable to explain how the agreement with Blue Nile had benefitted the Country as their claim that the company had ring fenced the export of galvanised wires remained unsubstantiated, as there were no relevant documentation to back their statement.
“For a company to be awarded the SOFA arrangement, majority of the employees must be of Kenyan origin, the officials that came before the committee claimed that the company had 1,000 employees, however evidence has shown that only 300 were Kenyans,” reads part of the submissions.
Further the company is required to have an operating capital of Sh10 billion but Blue Nile was seemingly favoured as its capital was stated to be Sh2.5 billion.
The committee sought to know what advisory opinion the office of the Attorney General issued, as it appeared there was collusion between unnamed Treasury officials and their counterparts in the State Law Office to issue skewed opinion to benefit a few individuals.
The Ainabkoi MP while requesting the statement had taken issue with the fact that the actions of a few elements within government had threatened the sustainability of the local steel production industry giving undue advantage to a few competitors.
Further concerns were raised on how the actions impacted on taxpayers at a time when KRA is struggling to bridge its deficit running into over Sh370billion.
The committee requested a further two weeks to probe the operations of the steel company and any other companies that have over the years illegally benefited from tax exemptions.