Governors are deducting taxes from salaries of their employees and members of the county assemblies (MCAs) but not remitting the money to Kenya Revenue Authority (KRA).
According to an audit report by outgoing Auditor General Edward Ouko, the county chiefs are holding onto nearly Sh13 billion that their employees contributed during the 2017/18 financial year in Pay As You Earn (PAYE) tax.
In a report on Kenya Revenue Authority’s finances, Mr Ouko said that of the Sh364 billion the taxman said it collected as income taxes in 12 months to June 2018, PAYE totaling Sh12.9 billion was not paid.
Without records to prove payment of the taxes, the top auditor did not give KRA’s financial statement a clean bill of health, and instead slapped it with a qualified opinion.
A qualified opinion is given by an auditor in the absence of financial records or where there is insufficient cooperation from an institution’s management.
Ouko said there is a reflection of income tax PAYE collected amounting to Sh364,103,621,093 in the revenue accountability statements.
“However, audit review of 47 county governments, assemblies and executive taxpayers’ ledger in the iTax system revealed the PAYE returns totaling Sh12,909,254,538 were posted in the taxpayers’ ledger without any corresponding payments,” he said.
Due to lack of revenue receipts to support the reconciliation with the taxpayers’ ledger, said Ouko, the completeness and accuracy of the PAYE revenue collection for the year ended June 30, 2018 could not be ascertained.
Asked about the findings, KRA said the Sh12.9 billion was payment remitted directly to Central Bank of Kenya through IFMIS. “Since counties, county assemblies, ministries and state departments make all payments through IFMIS, which is not fully integrated with iTax, their ledgers are updated through a continuous manual reconciliation process to reflect the credits when the payments are sighted in the CBK statements,” said Elizabeth Meyo, KRA’s Commissioner for Domestic Taxes.
Reports have shown that KRA has been going after seven governors including Nairobi’s Mike Sonko for failing to remit the deductions.
According to the tax agency, seven counties failed to remit Sh13 billion in income taxes.
Nairobi County has not paid Sh4.5 billion, while the other six counties combined owe the taxman Sh8.8 billion.
They are Migori, Homa Bay, Turkana, Kilifi, Murang’a and Kiambu. A review exercise of several others is in the final stages.
With the economy slowing down, KRA has turned to tax compliance to achieve its collection targets.
It has launched an all-out war against tax evasion with a number of prominent business personalities being caught in its dragnet for failing to pay taxes.
County chiefs have been summoned to appear at its tax tribunal in appeal, failure to which it would have them prosecuted.
Sonko, who honoured the summons, has since struck an agreement with the taxman to make part payment of the amount due.