Companies that have been enjoying tax reliefs under special arrangements with Treasury and KRA could come under sharp scrutiny after a House team declared them as unconstitutional.
A committee of the National Assembly has declared such agreements, best known as SOFA, null and void citing issues of constitutionality.
The Delegated Legislation Committee chaired by Ainabkoi MP Samuel Chepkonga dismissed the arrangements, especially for forbidding the disclosure of the forgone taxes.
The committee made the resolution in a review of tax relief arrangements between KRA and steel-making company trading as Blue Nile Rolling Mills.
The company entered into a 10- year agreement with the National Treasury and Industrialisation Ministry in 2020, making it impossible for KRA to collect about Sh5 billion.
MPs want punishment meted on the parties in the arrangement including government officials who were involved in what it has deemed an irregular tax exemption under the SOFA plan.
The company was granted a reduced rate of corporation tax at 10 per cent for the first five years – until December 2024 – and exemption of VAT on goods purchased locally or imported for use in steel making.
“Article 7 of the purported SOFA arrangement on confidentiality is unconstitutional,” the Delegated Legislation committee said in a report tabled in Parliament.
The probe followed a question by Kiambaa MP Njuguna Kawanjiku, alleging that the tax exemptions granted to the steel firm were irregular and illegal.
He raised concerns about the legality and fairness of the exemptions, prompting the committee to investigate the circumstances under which the same was granted.
MPs probed the legal basis of the exemptions, the benefits conferred to the company and the potential impact on government’s revenue and local steel industry.
SOFA arrangement fell short of the requirement for openness, accountability, and public participation, the committee concluded.
“SOFA was a statutory instrument which ought to have been submitted in the National Assembly for tabling consideration as required under the Statutory Instruments Act.Consequently, the committee observed that the SOFA was a nullity from the onset,” MPs said.
It emerged that Treasury failed to publish a gazette notice and submit the same to the National Assembly for approval. MPs said they were not involved in any of the stages of the process followed in exempting the fi rm from tax remission, hence denied them a chance to oversight the process.
“This house resolves to declare that the said Special Operating Framework Agreement was done outside the requisite legal framework, thus a nullity and hence void’,” the committee said in a recommendation to the House.